4 Supply Chain Finance Benefits & Why They Matter To Your Business

The uncertain times that we currently find ourselves in, has made it very difficult for businesses to remain profitable and to keep the doors open of the store. Businesses are struggling to make the payments with regard to owing the wholesalers and also lending institutions who have lent them money to get them over these difficult times. This is why businesses are looking for solutions that can help them meet their financial liabilities and many have turned to supply chain finance so that they can not only survive in this very difficult business climate, but so they can be more efficient, be more innovative and they can invest in new products and services.

If you are a little unsure about what supply chain financing is, then let me explain it a little. Its purpose is to lower the costs for both the buyer and seller and it is commonly referred to as reverse factoring. What happens is the buying organisation will use a third-party to fund the payment supplier. Typical third parties include banks or investing companies and they extend the service to the buyer under certain payment terms that both parties agree upon. It is supposed to provide a positive experience for all sides and it is commonly referred to as a win-win situation between buyers and suppliers. If you’re still a little in the dark about its benefits then maybe the following can help to shine some light upon it.

1. Payment terms can be extended by the buyer

The great thing is that buyers can make the payment terms longer if they need to, which gives them a lot more flexibility when trying to run the business. The positive thing for the supplier is that their cash flow is not interrupted because they are getting paid and they are getting paid early. This allows them to plan for any business risks that may come up.

2. The supplier controls the cash flow

Due to the fact that supply chain finance is being used, suppliers have a lot more choices when it comes to getting paid. They can easily schedule when that will happen and since the supplier is getting paid more quickly than they normally would, it allows them to invest in the business and to remain viable.

3. Suppliers get to enjoy lower interest rates

Supply chain financing allows the supplier to get a much lower interest rate than they would otherwise get. The beauty about supply chain financing is that the buyer is usually a much larger business enterprise and so it has a much better credit rating. This allows the buyer to be able to do business financing much more easily than the supplier ever could.

4. Strong relationships between the buyer & supplier

Each party is invested in the success of the other and to strengthen the overall relationship. It is in the buyer’s best interest to make sure that they don’t lose their smaller suppliers and so they want to do anything that they can to help them so that they don’t go out of business.

As you can see from the above four benefits, supply chain financing provides all of the answers that buyers and sellers have been looking for many years now. It provides a win-win situation for everyone and this can only be good for business now and in the future.