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Why Supply Chain Finance is a Better Option than Traditional Credit Lending

Even in the face of a global pandemic, global commerce has proven to be resilient. The use of readily available funding sources, such as supply chain finance, commonly referred to as reverse factoring, is crucial for many businesses in order to maintain normal operations.

Supply chain finance solutions can help you receive money rapidly. Before taking this route, investigate alternative funding options and determine what is best for your company. Although considerably different, invoice financing uses a similar structure for cash advances. You can collaborate with a finance specialist like Skyscend to understand what's ideal for the particular circumstances of your firm if you need more clarification about your funding options.

Although vendors can seek financial assistance from traditional credit lending, usually companies might need to be more capable of meeting the rigorous standards needed to acquire funding. To get liquid capital that helps advance their business, organizations may consider partnering with a global trade financing company that provides supply chain finance solutions.

What is Supply Chain Finance?

Supply chain finance is an effective mechanism for working capital optimization in any business. By using supply chain finance solutions to pay invoices early, buyers can enhance their working capital situation while preserving solid supplier relationships. Suppliers also win from it since it allows them to access cash early without requiring them to use their credit facility, enabling them to take advantage of their buyer's credit history instead of their own credit.

Exporters and importers involved in global trade have a common structure in supply chain finance. Financial institutions offer supply chain financing solutions to help both parties manage their invoice payment arrangements, manage liquidity, and keep the cash moving smoothly through the supply chains.

Importers, who are frequently bigger, more established, and have stronger credit records than Suppliers, who are typically headquartered in underdeveloped regions, initiate the majority of supply chain financing agreements.

Instant funding with Supply Chain Finance

Traditional credit lending entails requesting a loan from a bank. Because banks are subject to intense FDIC regulation, lending requirements are rigorous. Repayment schedules are also subject to these strict guidelines.

You must consent to make payments on the principal payments of a typical loan nearly immediately. Irrespective of whether or not your clients have paid you thus far, it doesn't matter. However, on the bank's repayment plan, you must start paying.

On the other hand, supply chain finance concentrates on releasing instant working capital for your business through acquiring accounts receivable. You will receive a portion of the invoice amounts in advance from the financial institution purchasing your receivables and handling your supply chain finance. It will subsequently collect the remaining balance from your client later. Unlike a loan, you never have to pay back the money you receive from supply chain finance.

Which finance is better for business?

Due to the ease of the contract, supply chain finance is a preferable alternative for obtaining a quick business loan. In addition, supply chain financing is an easy partnership between all the involved parties, whereas trade finance will necessitate extensive negotiations due to the vast number of parties involved.

A business can choose its essential suppliers and make early payments to them with supply chain finance to maintain a smooth flow of operations on both ends. The supplier receives the operating capital required for fulfilling future orders, while the firm benefits from early invoice payments.

Wrapping Up

Supply chain finance solutions can help ensure uninterrupted business operations. Skyscend is a company that provides this kind of service that you can use without having to go through a drawn-out application procedure and wait weeks for a response. In addition, it is a dependable solution for firms that require continual working capital because the financial backing for your company continues until you ask for it to stop.

Contact us if you'd like to explore the possibility of finding invoice financing for your organization. We are a non-banking company that specializes in providing supply chain finance solutions. In addition, to improve your operational capacities, we also provide working capital solutions. Book a Demo for additional information.


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