If your business is trying to optimize its working capital, strengthen relationships with its valued suppliers, and ensure the viability of its supply chain, supply chain financing may be the solution.

The financial supply chain is the flow of money between trading partners.

With supply chain financing, buyers can leverage a third-party to help their suppliers get paid earlier than the due date on an invoice. Suppliers give up a discount on the amount due on the invoice in exchange for early payment; the earlier the payment, the larger the discount. Unlike dynamic discounting programs where a buyer uses its own cash to fund the early payment, a bank or other third-party purchases the invoice and receives the full payment at the end of the invoice maturity term. Typically, the bank or third-party then pays the buyer a fee for participating in the program.

The benefits of supply chain financing  

Supply chain financing is beneficial for both suppliers and buyers.

  • Buyers can capture more lucrative early discounts, maximize their Days Payables Outstanding (DPO), ensure a more stable supplier base and strengthen supplier relationships.
  • Suppliers gain affordable access to capital and more predictable payments, which is particularly useful for small and mid-sized suppliers, and businesses in industries such as construction with uneven cash flows. This improves a supplier’s cash position and overall organizational financial health, while minimizing the risk of financial problems.

Unfortunately, most businesses are missing out on the benefits of supply chain financing. The root of the problem is that most accounts payable departments are heavily reliant on manual, paper-based invoice processes. This slows down the invoice approval cycle and makes early payment impractical.  

Electronic payables solutions benefits

Electronic payables solutions accelerate invoice approval to facilitate supply chain financing. There are several financial supply chain benefits that businesses can achieve with electronic payables:  

  • Faster invoice processing: With electronic payables, businesses can process invoices much faster than they can with paper-based invoices according to the Aberdeen Group. The technology reduces the invoice receipt-to-pay cycle from 13 days down to three.
  • Improved operational efficiency: Electronic payables solutions reduce the labor associated with processing invoices and paying suppliers, freeing staff to focus on working capital.   
  • Transform accounts payable into a profit center: The early payment discounts earned through supply chain financing helps accounts payable deliver value to the enterprise.  
  • Better supplier relationships: Electronic payables solutions provide real-time visibility into financing processes with ready invoice and payment status updates. This makes responding to supplier inquiries a breeze. Suppliers benefit from predictable payments and cash flow.
  • Enhanced reporting and analytics: Electronic payables solutions offer interactive reporting tools and real-time graphical depiction of data that can help buyers make better informed decisions on whether to use their own funds to capture early payment discount offers.

Supply chain financing is a win-win for buyers and their suppliers. For more information about supply chain financing, contact us to receive a personal consultation.   

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