How can supply chain finance help companies beat COVID downturn

September 2, 2020

The ongoing COVID 19 pandemic is a 'Black Swan' event that has dramatically impacted businesses and economies across the globe. The measures to curb the spread of the virus, such as extended lockdowns and stay-at-home orders, are predicted to have longer financial ramifications that could trigger an economic downturn worse than the 2008 recession.

As per the latest CNBC Global CFO Council survey, 40% of companies expect supply chain issues to impact their operations adversely. With widespread disruptions in the supply chain, the road to recovery for enterprises becomes even more challenging.

Supply Chain Financing (SCF) could be an effective solution to ease the working capital burden on buyers and sellers in these turbulent times. Traditional trade finance solutions digitized using today's technological advancements allow large corporates and small businesses to optimize working capital efficiently and at competitive rates of interest.

How can Supply Chain Finance help companies beat the COVID downturn?

Infuse much-needed Liquidity:

SCF offers sellers liquidity to keep their businesses functioning in uncertain times. There is an acute financial crunch with COVID-19 due to disruptions in enterprises' day-to-day functioning and a sudden drop in revenue. In such business environments where liquidity is scarce, SCF can help shorten the invoice to cash cycle for sellers that could be used to manage other urgent business expenses. It is also beneficial for buyers as it can stabilize their supplier base without impacting their cash reserves.

Paperless Onboarding:

Digitization and innovation in SCF have enabled an efficient and transparent onboarding and transacting process in comparison to conventional physical document-based financing.

With today's remote working scenario, new-age supply chain financing platforms like Cashinvoice are in a position to execute SCF transactions online end-to-end, from onboarding to funding and settlements. The integrated platforms have made it easier for all stakeholders to share confidential information, comply with e-KYC processes, and get paid online faster.

Optimized working capital:

Apart from offering liquidity, supply chain financing can be an excellent medium to optimize working capital for all stakeholders involved.

For buyers, SCF provides the opportunity to ensure timely payment to suppliers without straining their cash reserves. Additionally, through SCF, buyers can extend the credit period to benefit from longer payable cycles.

For sellers, SCF ensures early payment against their receivables, helping them take up and fulfill more orders. Moreover, since SCF is based on the buyers' creditworthiness, it offers financing at lower rates of interest than standalone borrowings leading to cost savings. SCF provides an additional line of credit that sellers can tap onto when needed most to keep their businesses functioning smoothly.  

De-risking the supply chain:

The COVID-19 crisis has brought the fragility of physical and financial supply chains to the forefront. Several organizations are already working towards strengthening the physical supply chain by empanelling more local vendors and contracting with multiple suppliers across geographies to reduce dependency on specific locations or vendors. SCF can be an excellent tool to strengthen the financial supply chain with e-invoicing and digitize the procure-to-pay process to smoothen workflows, minimize paperwork, and automate financing, settlement, and reconciliations.

Supply chain finance has innumerable benefits to ease the financial burden on both the buyers and sellers and navigate the consequences of an economic downturn. Reach out to us to know more about how Cashinvoice can help de-risk and stabilize supply chains beyond just surviving the crisis to be more resilient in the future.