Fix Your Supply Chain Woes with Smart Business Financing
In 2020 a Gartner poll revealed that 23% of the businesses rely on supplier finance or supply chain finance to improve their business cash flow in the postpandemic economy. According to McKinsey, supply chain finance can stimulate global commerce by unlocking more than $2 trillion worth of working capital. As a financing solution, it can boost the financial health of a company. It also helps create long-term cost strategies so that business continuity and production are never interrupted. In this article, we will explain how it addresses and mitigates your supply chain woes. It fills the cash flow gap and enables you to pay the suppliers on time. What is Supply Chain Finance? Supply chain finance or supplier finance is a form of business financing that allows enterprises to unlock their capital that is blocked by the supply chain. If you are a borrower seeking supplier finance, your lender will advance the amount you owe to your supplier, usually tied up in the unpaid invoices. How does it work?
A third-party mediator is added to the transaction cycle, previously comprising the business owner and the supplier. This third party is the lender, offering the supplier finance. When the supplier raises the invoice to the business owner for any commercial transaction, the business owner acknowledges the payment amount, submitting it to the lender, facilitating supply chain finance. The supplier gets a notification about the invoice from the lender as well. The supplier can immediately get the funds against the invoice or get an advance and wait till the business owner pays the invoice in full. Once the business owner pays the invoice in full, the lender pays the remaining balance to the supplier. It is a unique business line of credit for small enterprises heavily dependent on their suppliers for production. How Does Supply Chain Finance Help Your Business? Pending invoices and consecutive delays in clearing supplier payments are common problems for most Australian SMEs. Banks and traditional financing institutions, owing to their stringent regulations, make funds accessibility a difficult affair. That’s where supply chain finance swoops in and saves the day. Supply chain finance has benefits for both suppliers and the business owners: Enterprises Offers liquidity boost through consistent funding for sustained growth. Helps release the capital blocked by the supply chain. Mitigates the risk of production and supply chain disruption by forging long-term financial relationships. Extended payment terms ensure a cash flow boost. Access early payment discounts and special offers from the suppliers. Helps in building sustainable relationships with the suppliers via timely payments. Suppliers Allows the suppliers to increase their working capital through timely invoice payments. Enhance the sales cycles through cash flow boost. Conclusion When seeking supply chain finance, rely on a credible lender or reach out to a trusted finance broker in Australia, who will facilitate the financing and connect you with an appropriate lender. The viability of the supplier finance depends on the kind of loan terms that you get from the lender.