How Supply Chain Finance Is Offering Companies A New Cash Source


The pace of disruption and change in every industry is accelerating day-by-day. For most of the chief financial officers (CFOs), the challenge is not which project to fund but from where the money is going to come from for the funding of project?

Though the accessibility of external funding sources such as debt and equity is easier for most of the big firms but these external funding sources can be expensive and time-consuming ways to raise capital. Other funding sources such as reduction in capital investment can free up significant amounts of capital but these sources require major changes in an organization and are likely to cause major disruptions. Thus, these funding sources are usually considered as last resorts of capital.

One source of funds that is progressively showing up on the radar screens of CFOs today is supply chain finance. With supply chain finance, company can get access to cash trapped in its supply chain. With 3 primary strategic levers, CFOs can pull access to this cash:

  1. Increase payables
  2. Decrease receivables
  3. Decrease Inventory

Factoring, reverse factoring, term negotiations, dynamic discounting, p-cards and letters of credit are some of the strategies through which CFOs can pull these strategic levers.

Technology Has Made Supply Chain Finance Easier

With the rise of cloud-based SCF platforms, supply chain finance programs have been impacted in three major ways: making supply chain finance more efficient, more effective and easier to launch. Technology has increased the benefits of supply chain finance to a more wider range of companies than ever before.

SCF has become more effective

The technological advancement in supply chain has enabled transparency between the companies utilizing supply chain finance and their suppliers who participate. Now everyone is on the same network and can have instant access to the same information, visibility in terms of payments, relationship with suppliers may be improved.

SCF is more efficient

With technology, companies can now reach out to all the suppliers instead of only top-level suppliers and can extend supply chain benefits to all the suppliers. This will result in more liquidity available across the entire supply chain, which could help in strengthening the relationship of buyers and suppliers.

SCF initiatives are easier to launch

Through cloud-based platforms, SCF providers are now able to offer more value to companies. Cloud-based platforms provide a marketplace to source financing, onboarding supplier tools to increase engagement with suppliers and strong analytics to provide powerful insights on how companies can optimize their supply chain.

Earlier, supply chain finance was only utilized by only enterprize-size companies. That’s because most providers of supply chain finance were large banks. In today’s supply chain finance, the funding has been commoditized and technology provides value by connecting companies to a diverse and broader set of funders. That, in turn, has meant that a far greater number of mid-market companies are able to roll out supply chain finance — freeing up millions in capital to invest in their businesses. These companies are using the proceeds for everything from funding internal investments to grow their business to financing acquisitions and paying down debt.

What should a mid-market company look for when evaluating supply chain finance providers? These three things should be on top of any checklist while evaluating potential SCF providers:

  • Does the platform provide multi-source financing?

A multi-funder technique provides buyers and suppliers with more source of liquidity and diverse funding options.

  • Is it a global SCF platform?

In a global supply chain platform, suppliers and funders should match across all jurisdictions, geographies and currencies.

  • How does the provider engage with your procurement team to onboard suppliers?

For the success of any supply chain finance program, supplier management and onboarding are critical factors. Evaluation of technology in SCF platform, professional services and experience of the partner with the onboarding suppliers should be done.

The Bottom Line

Supply chain finance enables organizations to unlock assets trapped in their supply chains. With supply chain finance, suppliers can control their finances more effectively by receiving their cash exactly when they need it.