Improving Financial Flows Through Supply Chain Finance

The efficient management of working capital is the foundation of any business, but it could be particularly problematic in case of extending supply chains and overdue payment terms. The innovative phenomenon of supply chain finance has been a great development towards the efficient use of financial flows in complex global supply network. Supply Chain Finance is a set of technology-based business processes that help in the reduction of working capital costs and provide suppliers with the option of receiving payment for invoices earlier than normal. It is about fostering finance between the acquiring company and its suppliers.

Dynamic Discounting- This is a system where suppliers can make in advance their payments and they will deduct a discount provided to the buyer. The supplier unlocks the trade credit and collects payment upfront, while the buyer gets an interest-free loan by deferring the regular payment date. That is a double-edged sword for both sides, it increases the speed of cash movements and money availability.

Reverse Factoring – Brinks approved payables financing where a buyer gets into an arrangement with a bank or any lending intermediary for a financing of its invoices given by a supplier. In this transaction, the bank purchases the invoices and makes payment to the suppliers before their original deadline; however, the bank deducts a portion as their commission. The buyer gives then bank the payment demanded in reality on the exact date agreed.

Trade Order Receivable Financing - In this way, a supplier receives financing from a creditor after the buyer has signed a purchase order. Such a finance practice here is called a discounting. By the discounting the issuer provides financing to expedite the work and the shipment earlier than the settlement requires. The buyer remits the lender on the day of the need of the invoice.

Supply Chain Finance Platforms - These networks/software would allow the flow of information and assist in payment transactions. The joined up account enables participants see all invoices and transactions otherwise see it in the various accounts.

Supply chain finance is multifaced and has broad benefits. SMEs are able to use fintech credit to reduce the costs of capital and improve their working capital management thus leading to better cash flows. Consumers can be negotiated better budget, advanced payment dates and reduced supplies during procurement. Financial institutions that credit and lenders could earn some credit and interest income from financing that is coming up. There will be huge gain in transparency, automation, and efficiency of processes achieved through the implementation of smart technology platforms.

Growing supply chains do not make them globally practically bring this issue to the table. Organizations should start looking for the ways to integrate supply chain finance as one of the working capital optimization strategies. Innovative solutions provided in this space helps business organizations to actualize new sources of money while they fortify their position and spirits by networking the supply chain from one end to the other.