Why is supply chain finance increasingly important?
Globalisation has delivered many benefits to international trade but has made supply chains longer and more complex.
It only takes one late or non-delivery to bottleneck the flow of trade. This is why supply chain finance has become an invaluable tool for managing the security and flow of trade within supply chains.
How to set up supply chain finance
Businesses can approach a range of banks or finance providers to set up a secure online invoice management account for supply chain finance. The optimum lender for a business will depend on its industry, and the types of goods and services it provides.
Invoice factoring vs supply chain finance
With invoice factoring, a supplier sells its invoices to a finance provider together with the responsibility for chasing payment if the invoice doesn’t get paid.
This removes financial risk from the supplier. The factor collects payment of the unpaid invoices and charges the supplier an agreed fee for advancing funds and bearing the risk.
The essential difference between invoice factoring and supply chain finance is that supply chain finance involves businesses managing invoice payment terms and holding onto responsibility for chasing unpaid invoices.
What costs are involved in supply chain finance?
Invoice factoring removes all risk of non-payment while supply chain finance doesn’t, so fees for the latter would typically be lower.
Supply chain finance for different industries
Supply chain finance is common in a range of industries, including automotive, manufacturing, retail, chemical industries, and engineering. Each industry has its own requirements and finance providers may tailor their offerings accordingly.
Supply chain finance arrangements often exist where large, creditworthy buyers may be receiving goods from many small suppliers. The credit history of the buyers assures financiers that the risk of non-payment of invoices is low.
Advantages of supply chain finance
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