Gaining access to working capital is an effective method for maintaining day-to-day operations, especially for enterprises in the construction industry. Whether the business is a small or medium enterprise, supply chain financing plays a huge role in supplementing the firm’s management flow.
According to the World Supply Chain Finance Report 2018, supply chain financing (SCF) has been a rising trend for financial institutions. What was once an optional choice is now a necessity for many firms. For construction enterprises, it’s no different. SCF has provided enough benefits. Most of all, it propels construction enterprises to go over daunting finance challenges along the way.
Overcoming challenges in the construction industry
One of the driving forces of construction enterprises is the optimisation of working capital. This allows enough liquidity to be available to capitalise on expenses for subcontractors and their partners. However, working capital remains stasis for an undetermined period of time due to traditional ways of payment.
This is where SCF comes in. SCF allows working capital and liquidity to be untied from their stasis state by providing mutual benefits to both the buyer and supplier. This creates a more streamlined working capital flow for the supplier, while improving the position of the working capital for the buyer.
Since activities in the construction industry continue to grow, so do the cost for materials and resources, which proves the need for more working capital. SCF is already proven to improve working capital roles. It helps both the buyer and supplier with a whole range of benefits.
Benefits for buyers or contractors:
- Stabilise the supply chain
- Give advantages over rivals
- Improve Pays Payables Outstanding (DPO) which in return, optimises working capital
Benefits for suppliers or subcontractors:
- Speed up payment process
- Potentially lower financing cost
- Provide an alternate source of liquidity
- Reduce Days Sales Outstanding (DSO)
- Enable a smoother and more predictable cash flow
Bridging the gap
The construction industry is built on a core foundation based on traditional methods. Simply put, exchanging invoices for payment is not as simple as it seems. Payments in the construction industry are usually caught with tangled transactions along the way, which complicates the process for all stakeholders involved.
With SCF as a staple for most industries nowadays, construction enterprises are finally bridging the gap by utilising efficient technological advanced provided by supply chain financing agencies.
Creating enough space for a more effective working capital will be a staple for most business in the future. It’s a low-risk strategy for businesses, not just construction enterprises, to incorporate SCF in their management.
With SCF, expect more predictable payment, smoother cash flow, and lower operating costs. This helps suppliers rely less on lower operating costs, which reduces business risks in the long run.
The construction industry is in dire need of a supplementary work tool. Luckily, SCF can bridge the gap from one end to other, finally enclosing a long-time problem of optimising working capital.