Supply chain finance (SCF) helps businesses simplify accounts payable and reduce related costs. It involves a business selling its invoices to a financial provider in return for advance payment. The buyer looks through outstanding invoices and chooses those to “approve” for early payment. The buyer posts this information into a system that enables suppliers to log in and view approved invoices.
Trade Finance
Managing a global supply chain finance products involves juggling competing financial interests: buyers want to pay later, but suppliers need payment sooner. Trade finance solutions bridge this gap, helping to optimize working capital in domestic and international markets. Suppliers benefit from a more predictable cash flow and are able to scale production without the risk of a buyer defaulting on payments. In addition, the financing company handles credit monitoring and verification of the buyer’s commercial credit profile.
This helps eliminate the cost of remitting payment to a long list of suppliers, which could potentially reduce AP costs and complexity. As a bonus, pre-shipment financing gives a business the flexibility to accept unusually large orders without depleting existing cash reserves. This allows businesses to improve their cash forecasting and leverage a competitive advantage in the marketplace.
Early Payment
Many health and beauty buyers have payment terms that allow for early payments on their invoices. This is a win-win for both parties: the buyer can take advantage of a discount on their purchase and the supplier can get the cash they need a few days sooner than expected.
This can be done through a variety of means, including supply chain finance and reverse factoring. Supply chain finance involves a financier acting as an intermediary to pay the supplier’s invoices under the buyer’s standard credit terms, and the buyer then pays back the financier on or before the customer’s payment due date. This arrangement allows for flexibility in applying early payment discounts and allows the buyer to keep a line of credit open. This can be particularly useful for smaller businesses that don’t have access to capital markets.
Reverse Factoring
Reverse factoring is a supply chain finance solution that allows buyers to provide on-demand financing to their suppliers. Unlike traditional financing methods, this solution does not add debt to the company’s balance sheet and offers low interest rates. It helps businesses that are on a growth trajectory to expand their operations and purchase raw materials, labor, equipment, rent, insurance, utilities, and other operating expenses. But they need funds quickly to do so, especially if their buyers require extended payment terms.
Buyers can offer a reverse factoring program to their suppliers that provides them with financing of invoices for a small fee. This allows the buyer to extend their payment terms without having to worry about cash flow problems for their suppliers and gives them a competitive advantage with other business financing options.
Netsuite
NetSuite provides a complete solution for managing the entire supply chain. It combines financials, inventory, and customer relationships in one unified platform for unparalleled efficiency. NetSuite also offers a range of business analytics and reporting capabilities. Its Bill of Material (BOM) feature allows users to manage and arrange the list of parts, components, and assemblies needed to build a finished product. Its routing process enables users to balance demand and supply with the help of multiple settings inclined in item records.
Netsuite’s accounting module enables users to automate the processing of bills and payments, track vendor payments, record invoices, and manage accounts receivable. It also offers a variety of reports and dashboards. In addition, Netsuite has flexible payment processes that allow users to automatically define categories of payments based on choosing criteria.
Platforms
The growing availability of digital tools for business and finance is a boon to bank cash management software. Platform models consolidate digitized data produced by business and financial interactions, building trust and facilitating coordinated decision-making. Supply chain finance is an effective way to improve cash flow for buyers and suppliers while maintaining a strong working capital management strategy. This type of financing is similar to factoring, but it involves a third-party funder who pays invoices immediately rather than waiting for the buyer’s payment terms.
This type of supply chain finance can also be used to support informal retailers, whose access to credit is often limited by poor data, a need for collateral, and long loan terms. For example, Nomanini uses a technology platform to deliver a digital stock advance product for informal retailers.
Conclusion
Supply chain finance products are a way for buyers to pay their suppliers early by enlisting a third party to cash in an invoice. The supplier gets paid immediately minus a small fee. Buyers benefit from extended payment terms and more reliable suppliers in the face of economic turbulence. User-friendly software programs make it easy for companies to onboard hundreds of their largest suppliers.
