What is Supply Chain Finance?
Supply Chain Finance (SCF) also known as supplier finance or reverse factoring is a funding option that is useful to companies and exporters in most industries and companies within their supply chain network that are involved in the creation and sale of their products from the delivery of source materials from the supplier to the manufacturer, and eventual delivery to the end user.
Supply chain finance can enhance a company's purchasing power by providing access to flexible financing options that improve cash flow management.
There Are Two Types of SCF
There are two broad types of supply chain finance options described as “supplier initiated” or “buyer initiated”. The supplier receives the early payment from the lender (less the finance fee) and the lender gets repaid by the borrower on the due date.
Solutions to Optimize Cash Flow
Supply chain finance offers a set of solutions that optimizes cash flow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for their LARGE and SME (small or medium-sized enterprise) suppliers to get paid early.
Risk Mitigation Strategies
The SCF lender utilizes risk mitigation strategies to improve the management of working capital and liquidity within the supply chain. They provide financial options for both domestic and international suppliers, depending on your creditworthiness and financial strength. Additionaly, they support off-balance sheet inventory arrangements.
Financial options can support facilities based on payables, receivables, and, in some cases, inventory.
The lender's supply chain finance programmes align the needs of buyers and sellers while minimising risk across the supply chain. They offer various options, including export invoice factoring, purchase order financing, inventory lending, letters of credit, structured guarantees, and other structured trade finance techniques.
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