What is supply chain finance?
Supply Chain Finance is a form of cash advance, much like with invoice financing, it is based on the credit rating of companies within the supply chain.
How does supply chain finance work?
Larger companies are likely to honour invoices from suppliers – suppliers that work with them can therefore get up to 100% of the value advanced from a lender, minus commission, once the invoice has been approved for payment.
To put it in real terms – imagine a company purchases goods from a supplier. The supplier typically ships the goods and then sends an invoice to the company. The payment is then approved and processed depending on the terms of the payment agreement. Let’s say the supplier has a tough month and is in need of funding fast – it can request immediate payment at a discount from the company who purchased the goods. If this is approved, then the payment can be issued.
A simple breakdown:
- The supplier issues the invoice to the buyer.
- The buyer confirms the invoice is approved for payment to the lender.
- The supplier gets the value straight away (minus a small fee).
- When payment is due, the buyer then pays the lender.
A few benefits of supply chain finance
This financial service can be of mutual benefit for the buyer and the supplier due to its ability to stabilise cash flow.
- For the supplier – the injection of cash into their business can be quickly processed – this means that they do not have to wait for extended payment terms
- Lowered costs come as a result of this service as the funding is based on the buyer’s credit rating
- Payment terms can be extended without putting pressure on the supplier
Even though supply chain finance may seem similar to invoice finance, it is not the same. The lender helps both the buyer and the supplier, all three parties have an agreement together during the process.
Why choose Goodman Corporate Finance?
We will manage the whole deal for you, from the moment you make the enquiry right up to the point where the funds have been released. With our handheld and cradle to grave service, we pride ourselves on putting you and your business first, with expert guidance. This process takes the time and confusion out of sourcing the perfect funder.
We approach every new opportunity with ‘a blank sheet of paper’, offering a number of solutions for you to choose from. This unique approach means that you can choose the right solution for your situation.