How Does Supply Chain Finance Work?

Supply Chain FInance (SCF) is a financial solution that helps business owners manage their working capital better by streamlining how they pay suppliers in the supply chain and optimising buyer-supplier payment terms. Here is how an SCF program typically works:

• Typically, a third-party financier (like a bank or financial company) pays suppliers early. Usually, this is done using methods like reverse factoring or dynamic discounting. This helps suppliers get their money faster.
• The buyer (the company that ordered the goods) then pays the financier on the original due date, which is when they normally would have paid the supplier. This gives the buyer more time to pay, helping them manage their cash flow better.

Here are the potential benefits of SCF programs: 

• For Suppliers: They receive their payments quickly, which helps them have cash available for their own needs.
• For Buyers: They can extend their payment time, allowing them to keep more cash on hand for other expenses.
• For Financiers: They earn fees for providing this service, which can be at favourable rates because they rely on the buyer's good credit.

By streamlining payment processes and cash flows between buyers and suppliers, SCF makes it easier for buyers and suppliers to handle payments. It stabilises supply chains, reduces financial risks by helping everyone in the supply chain manage their finances better, and enables smoother business operations and helps them invest in growth opportunities.