What is Supply Chain Finance?

Supply chain finance is an innovative form of business funding that is designed to improve cash flow management and free up funds for investment, at little or no cost to the business. Supply chain finance also has other benefits such as improving supplier relationships and lowering supply chain risk.

For growing businesses that need to ensure their suppliers can keep pace, build strong relationships and ensure their entire business ecosystem is in great financial shape, supply chain finance is a great option now that fintech is making it increasingly smooth and easy to arrange.

How Supply Chain Finance Works

When you buy supplies from another business, you typically get 30 or 60 days to pay each invoice. Occasionally, if your own cash flow is stretched, you might extend that a little further – but your supplier won’t be happy. With supply chain finance, on the other hand, you pay your invoices straight away – or rather, your finance company does. You then pay the finance firm back, plus a small fee, at the end of the normal period, which could be up to 90 days later.

The key to supply chain finance, though, is that the fee is usually covered by the early payment discounts that can be negotiated by paying invoices early. Suppliers offer these invoices because they get a significant cash flow benefit and can use the cash to pay their own bills and even finance investments.

In simple terms, supply chain finance allows the buyer to pay later and the supplier to secure payments earlier, so that both parties improve their working capital position. This is done by using an intermediary – a nimble business finance provider like OptiPay.

OptiPay is best known for invoice discounting, but we also provide supply chain finance because in many ways, it’s a very similar concept. The main difference is that, while with invoice discounting the supplier sends their invoice to OptiPay for early payment, with supply chain finance it is the buyer who forwards the invoice to OptiPay being the finance provider, as soon as they receive it.

Further Benefits of Supply Chain Finance

Supply chain finance provides a great cash flow benefit to both the business arranging the funding, and its suppliers. It can be used in conjunction with invoice discounting to further boost the cash flow benefit and free up significant funds, in many cases providing a real alternative to longer term arrangements such as a business loan.

But the advantages of supply chain finance go deeper. Almost uniquely among business funding arrangements, it also significantly helps other businesses. In exchange for a modest discount, suppliers can get their invoices paid within days instead of weeks or months. This provides them with extra working capital without them having to arrange funding, and because cash flow issues are the biggest killer of small businesses, it puts your supply chain on a more secure footing.

Even larger companies can see their growth hampered by the gap between their own bills coming due and their invoices being paid. This can force businesses to arrange slow and expensive funding before they can meet increased orders – slowing your growth further down the line.

With supply chain finance, you ensure that doesn’t happen. You build a stronger relationship with your suppliers and ensure your orders are always met promptly and as a matter of priority – because your supplier knows they will be paid as soon as they deliver.

Supply chain finance provides a fast, smart funding solution whilst also securing your supply chain and priming it to support your growth. As experts in smart finance, OptiPay’s sales consultants will be happy to advise you on how to arrange supply chain finance for your business and your partner businesses.

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This is Paul, he is one of the directors of UVS, a labour-hire provider to the construction industry. Here’s what he has to say about how OptiPay was able to help his business grow and succeed. Contact an OptiPay expert today to see how we can help you.

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