Supply chain finance, sometimes referred to as supplier finance or reverse factoring, is a group of products that helps businesses maximize their cash flow by extending the payment periods they give to their suppliers while giving their large and SME suppliers the option for early payment.
Companies are under pressure to release the captive working capital solution in their supply networks as global supply chains extend the world with multinational clients on one side and a diverse set of suppliers in multiple nations on the other.
The concept of supply chain finance is relatively new in supply chain management. However, major Interest in supply chain finance has progressively grown over the years, particularly amid the 2007-08 global financial crises. However, supply chain finance shifts the focus of research away from the narrow perspective of managing only the cost when investigating the financial elements of supply chain management and toward the connections between supply chain management, business value, and financial success.
What is Supply Chain Finance?
Supply chain financing is a cash advance, sometimes known as supplier finance. It is based on the credit standing of supply chain companies, just like invoice financing and early payment. To manage the capital invested in the supply chain and lower risk for the parties involved, financial institutions such as banks employ supply chain financing (SCF).
The supply chain finance program by Skyscend operates by automating business operations and monitoring the approval and settlement of invoices from start to finish. By this paradigm, buyers consent to approving their suppliers' invoices in exchange for financing from a bank or other external financier, sometimes known as factors.
It enables consumers to extend their payment terms and enables smaller businesses to gain better customer credit scores. A specific occurrence or trigger in the physical supply chain motivates each financial action financing, risk management, or payment throughout the supply chain.
How Does Supply Chain Finance Operate?
Supply chain finance is most effective when the buyer has a more robust credit score than the seller and can therefore obtain funds from a lender at a lower cost. This benefit enables buyers to bargain with the seller for better conditions, such as early payment and longer payment terms. In the meantime, the vendor can sell their goods more swiftly and get paid immediately by the financing intermediary.
Reverse factoring or supply chain finance often promotes cooperation between sellers and buyers. This philosophically counters the competitive dynamic that frequently develops between these two sides. After all, in customary situations, purchasers seek to postpone payment while sellers seek to receive payment as quickly as possible.
Importance of Supply Chain Financing in times of Economic Distress
Even if your business is prudently operated and well-capitalized, the financial difficulties of others may nevertheless harm you. As a working capital solution provider, we at Skyscend have observed numerous cases when the primary stakeholders' distress brought on the client's final liquidation. This is where our supply chain finance program offers extended support to our clients.
Customers might stop paying, financially precarious suppliers interrupt your supply chain, desperate rivals drop prices to untenable levels, and banks and investors stop providing money. However, companies can take various steps to manage this uncertainty and reduce their financial exposure.
By giving customers longer payment terms and enabling suppliers to use their unpaid invoices to get paid more quickly, supply chain finance from us help to stabilize the supply chain. Sales cycles can be sped, and company objectives can be accomplished more quickly with funds released from the supply chain.
The fact that so many people work from home during the outbreak is one of the major challenges for buyers, making it more challenging to adopt the technology. Nevertheless, supply chain finance can be advantageous to companies operating in various industries. Consumer goods, production, and transportation are the industries that have adopted supply chain finance at the highest rates.
Supply chain finance gives businesses the flexibility they need to expand. For firms in need of cash, releasing capital constrained in the supply chain can be revolutionary. In addition, long-term partnerships can be cultivated, reducing supply chain disruption risk.
You Can't Predict Economic Distress, But You Can be Prepared
By contributing professional experience in crisis management, valuable insights for risk assessment, best practices for executing quick change, and a demonstrated ability to separate entangled finances, Skyscend offer support to their clients. By being proactive now, crises can be avoided in the future. Delaying would inevitably increase the dangers to your business, turn tiny concerns into bigger ones, and even lead to bankruptcy that might have been avoided.
The Supply Chain Finance program from Skyscend offers early payment, an influx of working capital, and accessibility to alternative sources of finance. The program benefits suppliers since it gives them more control over cash flow. In addition, Skyscend can support your organization in better working capital management. If you are looking for a working capital solution or early payment options, let’s talk. Book a Demo now to know more.