Knowing More About the Working of Supply Chain Financing

Knowing More About the Working of Supply Chain Financing

May 17, 2021 Off By Paul Petersen

There are several financial tools involved in receiving and improving the payments between the suppliers and the businesses they are supplied for. And supply chain financing is one of those general terms used to define the process. These financial solutions can be applied to businesses in several ways. They are like:

Supplier financing

This is a form of supply chain financing that helps the manufacturers as well as the distributors to focus on buying new raw materials. This can be done to build inventories or to fulfil larger orders coming in the way. This is done by a business by partnering with a supply chain financing company that helps them acquire the required trade credit. They also in turn acts as an intermediary between the supplier as well as your business. Anytime you raise the requirements of buying raw materials, your business needs to place a purchase order to the financing company. The finance company then places the order with the supplier and also handles the payment terms on behalf of you.

Once the order is placed with the supplier, you will get the goods from them. The finance company pays them on your behalf and issues you an invoice. This invoice is payable to the financers on net credit terms basis.

What are the advantages?

  • It is a pre-delivery finance tool.
  • You can build inventory and help your company grow.
  • It does not hamper your current financing.
  • You do not need to file a lien on the current assets.
  • Any small or mid-sized company can take the loan.

Reverse factoring

This is a very common deployment method for supply chain financing solutions. In factory financing arrangements, a business always seeks out ways to improve its financial standings in the industry. They do this by selling their accounts receivables to factoring companies. This happens in a bit unconventional way. A business enters in to reverse factoring terms with a supply chain finance company and they then intermediate it into the accounts receivables for the business.

What are the advantages?

  • The suppliers get early payments from the businesses.
  • Improves the credit score of the business.
  • Suppliers pay lower fees for the next payments to the business.

Accord Financial services are the best partners in your supply chain financing issues. The credit line will be maintained and you would be receiving funds at the earliest.