How Supply Chain Financing Benefits Both Suppliers and Buyers

With its direct impact on company success, customer satisfaction, and vendor relationships supply chain management plays a vital part in most businesses. According to a 2021 report, 70% of businesses believe that supply chains are a key driver for quality customer service. With this in mind, it is important to have an efficient financing method to prevent potential supply chain disruptions that can be detrimental to the success of your business.

If you have a higher credit rating than your supplier, implementing a supply chain financing solution (also known as reverse factoring), can be an excellent way to strengthen your organization’s financial process. Leveraging this type of technology helps eliminate the negative effects of longer payment terms through allowing your vendor to receive a timely payment without putting pressure on your business. This advantage truly makes supply chain financing a win-win situation for all parties involved.

Benefits for Buyers

With the supply chain financing solution being initiated by the buyers, we understand that you will want to ensure that you are making a profitable investment for your organization. A supply chain financing solution can benefit your business in the following ways:

Improve working capital

A reverse factoring solution helps prevent your working capital from getting stuck in your supply chain. Utilizing a third-party finance provider helps keep your operations running smoothly by delivering efficient access to financing.

Reduce supply chain disruption risks

Providing your suppliers with convenient financing allows you to reduce the risk of potential issues in your supply chain. A 2022 article from the New York Times predicts it will be unlikely for businesses to have no disruptions within their supply chain. Unfortunately, this fact will not change over time. Combating these problems with financing technology is an effective way to help strengthen your supply chain disruption plan and prevent these drawbacks from occurring.

Foster business development

Supply chain finance will allow your business to better adapt to unexpected demand surges. Without the proper financing assistance from the intermediary, it can be difficult for your vendor to accommodate sudden order quantity changes.

Easy bookkeeping

An efficient supply chain financing solution, like SK Global’s Supply Chain Financing Module, will keep the payable on the record with the original vendor during the initial invoice term. On the due date, the original vendor’s invoice is resolved and the liability is shifted to the SCF provider for immediate payment. If your business has multiple invoices with the same due date, the payments to the SCF provider can be grouped by currency alone or by vendor and currency.

In addition, SK Global’s supply chain financing module is embedded in your Microsoft Dynamics 365 ERP, keeping all your supply chain financing invoices in one centralized system. This makes it simple for your organization to track accurate records of your financial affairs in real time.

Develop a stronger relationship with suppliers

Considering all the vendor benefits that come with adding supply chain financing technology, your supplier will likely be thrilled that you are implementing a reverse factoring solution. Fostering a strong relationship with your supplier may give your procurement team an advantage when negotiating contracts.

Benefits for Suppliers

When a problem arises on your vendor’s side, it negatively impacts your whole supply chain. With this in mind, you will want to make a decision that is not only profitable for your business but is also advantageous to your supplier. Adding a reverse factoring solution to your financial process offers the following benefits to your vendor:

Receive payments earlier

If your vendor agrees to a supply chain financing solution, they will receive their payment much faster. Typically, invoices have a 30-to-60-day turnaround, leading the supplier’s funds to be held up in received products. This can be a huge inconvenience to your supplier, especially if you habitually pay right at the deadline.

Optimize cash flow

With reverse factoring, the financing intermediary will pay your supplier early, allowing them to maintain a healthy cash flow without putting a strain on your business. When the due date approaches, your business pays the third-party finance provider.

Improved cash flow forecasting

The timing of payments is more predictable when using a reverse factoring solution. Providing your vendor with the tool to have greater visibility over their cash flow will allow them to make better educated business decisions.

Increase working capital

With a reverse factoring solution being organized and funded by the buyer, your vendor does not finance through their own working capital. Additionally, receiving early payments will allow your supplier to reduce their days sales outstanding, leading to further working capital gains.

Lower interest rate

Due to fees being based off your business’s credit rating and not your suppliers, the interest rate will be significantly lower when compared to other forms of financing. Lowering financing expenses for your vendor will grant them the ability to better invest the funds saved.

Supply Chain Financing with SK Global

Whether you’re coming from the buyer’s or vendor’s perspective, supply chain financing is beneficial to all companies involved. Efficient supply chain modules, like SK Global Software’s, work to automate your communications with your supply chain finance providers. Our reverse factoring solution is directly embedded into your Microsoft Dynamics 365 environment to streamline and support the entire supply chain financing process.

If you’re considering a reverse factoring solution, we would enjoy discussing the next step with your business. Contact us today