Supply Chain Finance

What is Supply Chain Finance?

Supply chain finance allows suppliers to receive invoice payments early. Using this method of finance alleviates potential disturbance to the supply chain, allowing the suppliers and businesses to obtain necessary cash flow for operations.

Supply chain finance differs from alternative financing arrangements including invoice factoring, as the agreement is created by the buyer, not the supplier. The buyer sets up an arrangement in which the supplier can activate an early settlement, usually done through a bank or a lender.

This method is also favourable for the buyer, as the buyer’s financial liquidity is not affected, meaning general business operation for the buyer can continue as normal.

By using supply chain finance, the supplier can receive payment in a short space of time, and the buyer can agree more favourable terms than those initially agreed.

How does Supply Chain Finance work?

Supply chain finance works by the buyer making an agreement with a supplier to join a trading relationship. After an agreement has been made, a financial institution is brought in.

Once a relationship is established, a payment term is set in place (usually ranging between a 30 and 90-day period).

Once the term is agreed, the supplier submits an invoice and provides the details of when the invoice needs to be paid, and once this is done, the buyer approves the invoice.

Once this has been set up, the supplier sends their early payment request, then the financial institution pays the supplier.

After this, the buyer pays the financial institution on the pre-arranged date for the supply chain finance agreement.

Why use supply chain finance?

Supply chain finance is a suitable option for businesses seeking to reduce any potential issues that may occur in managing their supply chain. By maintaining strong working capital, suppliers can manage their operations more comfortably, leading to being more financially stable.

Buyers may want to use supply chain finance to improve cash flow. By setting up the agreement on their repayment terms, buyers can manage their cash flow better, making day-to-today operations easier to manage.

Benefits of Supply Chain Finance

Improve Cash Flow: Access funds quickly by unlocking cash tied up in assets, helping you maintain a smooth flow of cash without waiting for payments from customers.

Strengthen Supplier Relationships: Offer your suppliers early payment options, improving supplier relations and enhancing long-term partnerships with better payment terms.

Flexible Financing Solutions: Tailored financing options that suit your business needs, whether you're looking for short-term liquidity or longer-term working capital support.

Boost Working Capital: Free up capital by turning invoices into cash, empowering you to reinvest in growth opportunities, restock on business assets, or reduce debt.

Future Planning: Access to flexible financing enables better cash flow management, helping you plan for growth, navigate potential changes, and take on new opportunities with confidence.

Things to consider for Supply Chain Finance

Lender: Ensure the lender understands both the buyer and the supplier, the industry they operate in, and what they want out of the agreement.

Fees: The supplier requesting the early invoice payment does not receive the full value of the invoice, as the lender usually takes around 10% of the invoice amount.

Credit history: Supply chain finance is typically only available to businesses with a strong credit history.

Documentation: Ensure your business is able to provide all relevant documentation, for example the letters of credit.

How to apply for Supply Chain Finance

MAF Finance Group can compare offerings from a variety of lenders to find the options that suit your business best.

If you would like to get a quote or gain further information, fill in the form below and we will be in touch.  To contact us by phone, you can call at 0115 958 6872 and a member of our team will happily speak to you. Alternatively, you can email us at [email protected].