While many things change in the world of business, there are some constants – the biggest of which, perhaps, is the fundamental importance of good cash flow management to keeping a business up and running.
Business supply chains, with their associated invoice and payment flows, play a key role in good cash flow management.
In recent years, though, we’ve seen supply chains become increasingly complex and diverse – with multinational buyers and suppliers dotted all over the world.
And, these ever-more complex supply chains have come to pose a real challenge for countless businesses, from SME’s to large enterprises. There are currently trillions of dollars “trapped” within these supply chains that could be used by businesses as a fuel for growth.
What if there was a way to reclaim the cash that’s tied up in your supply chain, reduce supply chain risk and strengthen your supplier relationships, all at the same time?
The solution you’re looking for could well be supply chain finance. In simple terms, supply chain finance is a form of short-term working capital, or cash flow, financing for businesses that provides a powerful tool in cash flow management for both business buyers and suppliers.
It works by facilitating the financial flows between business buyers and their suppliers, to the benefit of both parties: with typically, large corporate buyers making early payment of key supplier invoices using finance provided by a bank or other financial institution.
Logistically, the financial flow works as follows:
1) The financial institution early pays the supplier on behalf of the buyer, deducting the cost of finance from the amount paid.
2) The buyer re-pays the financial institution the full invoice amount on the invoice due date, or at a later date agreed with the financial institution.
There are a number of clear benefits for all parties involved.
Since you able to pay your suppliers more quickly, you help ensure that they have the cash on hand to run their businesses and continue to deliver key products and services. In addition, by providing direct support to your supplier’s business, you are able to significantly strengthen your business relationship.
And this, in turn, gives you the leverage to negotiate better supplier terms, including longer payment terms and price discounts – delaying cash outflows, improving working capital and reducing your cost base.
You’ll also have the added benefit of freeing up your in-house finance team from dealing with calls and emails from suppliers asking when their invoices will be paid – they’re already being paid at the earliest opportunity!
The main benefit for suppliers is clearly that they’re able to get paid much more quickly than might normally be the case, in exchange for a small fee. This improves the supplier’s cash flow, helping them to meet key financial commitments, such as payroll, and to invest in improving and growing their business.
And, because the finance fee they pay is based on the credit rating of a large corporate buyer, suppliers typically benefit from a lower cost of borrowing than is warranted by their own credit rating. For this reason, supply chain finance is often one of the cheapest sources of finance for many businesses.
Supply chain finance is a great way to create a healthier, more financially robust supply chain. Suppliers get paid quicker – which is, ultimately, what their business thrives on – and cash stays in your business longer. What’s not to love?
To find out more about how supply chain finance can help your business, call us on +44 (0) 2078594742, or email us at firstname.lastname@example.org. More information call also be found on our website at https://giifinance.com/product/buyer-products.