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If your business purchases goods from overseas suppliers, ensuring that those suppliers are always paid on time can leave a big dent in your day-to-day cash flow. Supply chain finance is designed to help businesses overcome this problem, providing the funds you need to pay suppliers while at the same time allowing you to access the working capital you need to grow your business.
Supply chain finance allows businesses and suppliers to work together to stabilise their cash flow. It typically features a combination of working capital facilities, usually import finance and debtor finance, to simplify the payment process.
Why might a business need supply chain finance? When buying high-value goods from suppliers, paying for those goods upfront can have a huge impact on cash flow. This type of finance involves a financier paying the supplier's invoice immediately, allowing your business to continue to trade as normal and pursue growth opportunities, and then pay down your debt once you receive payment from your own customer.
Not only does this mean increased working capital for your business but also a better relationship with your supplier. As a result, the overall stability of your supply chain is improved.
Supply chain finance is sometimes also referred to as reverse factoring, supplier finance, accounts payable finance and trade finance.
Supply chain finance is an important financing solution for any business that purchases products from overseas-based suppliers and then sells them on to customers on trade credit terms. It's worth considering for any business that relies on a complex supply chain but is particularly popular across the automotive, manufacturing and retail industries.
As an example, an Australian manufacturer may need to import parts from overseas to meet tight production schedules, or a wholesaler may need to maintain sufficient levels of stock of popular products during busy periods such as the lead-up to Christmas.
Invoice financing is a type of business loan that is secured by the unpaid invoices of your customers. A lender will take on your invoice and pay you a percentage (generally 80% or more) up-front. You can read more about it at our guide to invoice financing.
Compare invoice financing products below.
Supply chain finance allows a supplier to take advantage of your business's strong credit rating to access capital at a lower cost and with better payment terms. It is different to a traditional business loan and is an extension of your business's accounts payable. It works as follows:
While this is happening, your business can negotiate more favourable payment terms and prices with the supplier, maximising profitability and shoring up your supply chain. Your supplier may even decide to implement supply chain finance with its own suppliers, which can then strengthen any potential weak links in the chain.
Make sure to consider the following factors when comparing your supply chain finance options:
Yes. A well-managed supply chain finance arrangement can improve cash flow for your business and for your supplier, providing access to the funds you need whenever you need them.
Yes. The better your credit rating, the more favourable payment terms you can receive.
No. Many supply chain finance providers operate in the cloud and can be accessed online, with no need to install new software or equipment.
No. The supplier will be able to continue invoicing buyers in the same way it already does.
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