Supply chains span the entire globe, connecting suppliers and buyers across multinational networks. The sheer size of the supply chain and number of companies involved can make cash flow complex. Working capital can easily become trapped in the supply chain, limiting organizational operations and scaling.
Businesses can optimize their own cash flow, maintain simplified bookkeeping, and provide options for suppliers to do the same by partnering with a supply chain finance (SCF) partner. An SCF solution allows suppliers to get paid earlier without putting strain on buyers, and helps build stronger, more stable supply chain relationships.
What is Supply Chain Finance?
Supply chain finance, also referred to as supplier finance or reverse factoring, generally requires the buyer to have a higher credit rating than the supplier. The process is initiated by the buyer, not the supplier. The buyer places an order as usual and receives goods from the supplier, then is invoiced according to their agreement.
The invoice may be due on a 30- or 60-day net, meaning the supplier’s capital is tied up in the delivered goods. This can cause friction between the buyer and seller, especially if the buyer routinely runs out the clock on payments. Instability can cause delays on the supplier end if they cannot replenish their inventory in a timely manner.
Supply chain finance options allow a buyer to approve a supplier’s invoice, and confirm that the full amount will be paid when the invoice reaches maturity. The invoice is then presented to a third-party intermediary such as a bank or other financial institution for financing.
The supply chain finance partner pays the supplier early for their invoice and charges them a premium. When the original invoice matures, the buyer pays the intermediary the total amount originally due. This allows suppliers to maintain good cash flow, and buyers to maintain strong relationships with their suppliers.
The challenge to SCF adoption
The sticking point with supplier finance is the paperwork that must be conducted between the buyer and the SCF to manage all suppliers approved to receive a reverse factoring option. It can be one more series of steps to go through to get suppliers set up with a SCF partner, and manage both sets of invoices.
To reduce paperwork and multiple steps for successful SCF processing, SK Global’s Supply Chain Finance (SCF) module delivers complete and automated support throughout the supply chain finance process.
Streamlining SCF partnerships
The Supply Chain Financing module for Microsoft Dynamics 365 for Finance and Operations helps your company effortlessly:
- Automate and streamline all communications with your chosen supply chain finance providers for hands-off operations
- Manage all invoice settlements directly with your SCF providers rather than managing various payments to your original vendors
- Support multiple types of settlement methods from one centralized dashboard to reduce errors or delays
- Seamlessly integrate your new SCF module into your existing Microsoft Dynamics 365 Finance and Operations setup
Use case for the SKG’s SCF module
If your company makes a routine purchase from a supplier and receives a 60-day payment settlement window on the invoice, you have 60 days to complete payment, However, to maintain good relations with your supplier and support them to ensure they can restock before your next order, you may opt to connect them with your SCF provider.
Using the SKG supply chain finance module, your original invoice would immediately upload to your SCF partner, and you can opt to receive a notification stating whether the invoice was accepted for financing. From there, the SCF provider negotiates terms with your supplier independently, without further action required from you, and pays a discounted amount on the invoice through their own platform.
When the original due date arrives, the module automatically resolves the vendor’s original invoice and generates an invoice payable to your SCF provider, which is then paid by your accounts payable department.
Advantages of switching to SKG to handle SCF processes
SKG provides automatic notifications to the SCF provider when new invoices arrive from an approved vendor, and also manages receipt of notifications from the provider when the invoice uploads. Settlement notifications sent from providers are also monitored to prevent unhandled issues or missed rejected invoices.
For streamlined bookkeeping, the payable remains on the books with the original vendor during the original invoice term. On the due date, the original vendor’s is resolved and the invoice generated for the SCF provider. For multiple invoices due on the same date, aggregation by currency alone or vendor and currency is possible.
The Supply Chain Finance module can also work with SCF providers to handle various methods of settlement, including due date based settlements, file based settlements derived from electronic invoices sent by the provider, and settlements without moving the payable on the due date (if the SCF partner’s bank account has been associated with the original vendor.)
Are you ready for reverse factoring? Contact SK Global today to learn more about our Supply Chain Finance Module.