Need an extension to pay for the supplies you bought? Need early payment to fulfil your orders for clients? Whether you are a buyer or supplier, Supply Chain Financing Solutions have a win-win solution to offer you. Below, we listed 4 reasons why you should give Supply Chain Financing a try:
- As A Buyer, You Pay Later
In a traditional setup, a buyer and supplier agree on the payment terms for the supplies to be delivered. This payment term will then be indicated in the invoice which is passed on to the buyer upon delivery of supplies; this means that the buyer will need to pay for the supplies delivered in full by the time the invoice hits maturity date. This set up puts a lot of pressure on the buyer since they will need to allocate enough money in time to pay the suppliers or risk straining their relationship with suppliers.
However, under a Supply Chain Financing Program, buyers can extend the payment terms of their invoices, giving more time to allocate the money they need to pay. This is done through a third-party funder under the program who will shoulder the payment of the buyer ahead of time, and the funder and buyer can then agree on a new term of payment.
- As A Supplier, You Get Paid Earlier
Without a Supply Chain Financing Program, suppliers have no choice but to wait for the buyer’s payment to come. This hurts the supplier’s workflow efficiency and increases the risks on the supply chain and the delivery of supplies to buyers. In the event that the supplier runs out of funds for operations, they may need to take a loan which potentially adds more strain to their financial health.
With a Supply Chain Financing program in place, Suppliers don’t need to worry about getting paid earlier, thus not having to worry about cash flow. Suppliers can simply leverage on their buyer’s supply chain programme and have funders pay them ahead of time in exchange for the invoice of the sale.
- There’s Minimal Supply Chain Risk
Without a Supply Chain Financing program, both supplier and buyer take on risky positions that could be damaging to their businesses. Suppliers take a lot of risk when they agree to long-term payments from buyers, especially when their buyers are small-medium enterprises (SMEs) or start-ups that are still establishing themselves. For buyers, they run the risk of straining their relationship with suppliers if they can’t pay them on time.
Under a Supply Chain Financing Program, these risks are minimized. With a third-party funder paying for the supplies, the supplier-buyer relationship won’t be strained because of financial matters. And because buyers can ask for payment extension from the third-party funder, there is less pressure and more time for the buyer to pay the funder.
- No Debt in your Balance sheet
Unlike getting a loan from the bank, Supply Chain Financing does not register as a debt in the balance sheets. That is because the financing is a part of the buyer’s account payable, which they are obligated to pay for and does not incur interest.
This helps keep the company’s balance sheet clear of any unnecessary debt which could hurt their credit standing with banks or even give potential investors a negative impression.
While the traditional setup is still widely used in today’s corporate setting, Supply Chain financing is rapidly becoming a growing practice and has benefited many companies, both in the SME sector and in bigger firms.