Is supply chain finance really beneficial for suppliers?

November 18, 2019

Supply Chain Finance is often touted as a win-win solution benefitting all three stakeholders – buyers, sellers, and financiers – equally. However, suppliers are still wary about entering into a supply chain finance program. While the seller’s doubts are legitimate, given the conflicting trade interests of buyers and sellers, when it comes to SCF they are misplaced.

The answer remains, YES. Supply Chain Finance is an excellent means of financing for suppliers to leverage cash locked within the supply chains. Here are a few of the significant benefits suppliers can gain through SCF

  1. Cost: First and foremost, the benefit of any supply chain finance program for suppliers is the lower cost to capital. A Supply Chain Finance program relies on the creditworthiness of the buyer rather than that of an independent seller. This consideration enables financiers to offer better terms by seeking comfort on the buyer-seller relationship instead. Suppliers can access capital with lower rates of interest and without collateral to meet their day-to-day working capital needs through SCF.
  2. Liquidity: Supply Chain Finance is the most convenient means of converting invoices to cash seamlessly when required. With today’s dynamic models of discounting, suppliers have the freedom to choose the invoices as well as the time when they wish to encash the amount. This freedom allows small businesses to plan their working capital better with assured liquidity to meet changing demands smoothly.
  3. Growth: One of the significant factors that disrupt growth for small businesses remains access to steady and reasonably priced capital. With over 80% of small businesses in India lacking formal access to capital, supply chain finance is a reliable approach for small businesses to access steady working capital. With day-to-day operations seamlessly funded through SCF, promoters can then divert their focus on investing surplus funds in achieving long-term goals of the firm.
  4. Visibility: Technology has revamped several aspects of how we do business today, and receivables and payables management is no exception. With more buyers opting to automate the end-to-end process from invoice to settlements to empower smoother supply chain financing, suppliers gain better visibility on order, invoice approval, and payment status. Limited resources of small businesses that were earlier employed to track and follow up for payments from buyers today can be put to better use instead. With complete visibility of invoices, payment status, the interest cost, and reconciliations available at the click of a button at the convenience of their offices, suppliers today can manage their receivables efficiently by associating with the right SCF and technology partner.

The benefits to supplier’s business in the long run through supply chain finance is invaluable. However, suppliers need to ensure that they and the buyers are associated with the right fin-tech partner capable of executing SCF programs successfully. Manual SCF programs that are rigid with no flexibility add to the woes of supplier receivables management rather than ease them. Reach out to experts at Cashinvoice to know more about how we can help you access Supply Chain Finance in a meaningful and impactful way for your business.