Supply chain finance—reverse factoring—is a buyer-led solution that allows businesses to pay their suppliers faster and extend terms. This type of financing can be a lifesaver for cash-strapped businesses.
The right platform can streamline invoice payment processes and increase liquidity for buyers, suppliers, and financial institutions. Learn five essential features to consider when choosing the right SCF provider.
Scalability
A supply chain financing (SCF) or dynamic discounting platform can be a powerful tool for global buyers, suppliers, and financial service providers. However, it’s essential to find a scalable solution. If a bank provides funding for an SCF program, it should offer the flexibility to add or replace banks as the program grows. This ensures that funding is available when needed and that the platform can adapt to changing market conditions.
Invoice financing, also known as accounts receivable finance, is a type of SCF that allows businesses to sell their unpaid invoices to a financing company for immediate cash. This will enable suppliers to receive payment sooner, freeing up liquidity and increasing cash flow. It can also help expand financial inclusion for the 141 million global microenterprises that traditional lenders do not serve, as they need more credit data than conventional lenders require.
As a result, a supply chain financing platform can be an effective strategy to reduce working capital constraints in developing countries. Moreover, it can allow global buyers to leverage their commercial and trust relationships to increase the efficiency of their supply chains and reduce their working capital needs.
Integration
When implementing a logistics financing program, ensuring that the platform is integrated with buyer and supplier systems is crucial. This will enable seamless invoice submission, credit assessment, and payment processing. It will also facilitate collaboration among supply chain partners, resulting in efficient communication and streamlined negotiations.
To optimize working capital and foster trust between buyers and suppliers, it is essential to communicate clearly about the goals of the logistics financing program. Educate your staff and encourage open dialogue between departments to ensure all parties understand the program’s benefits. In addition, it is a good idea to pilot the logistics financing program with select suppliers and buyers.
A supply chain finance platform is a financial solution that allows buyers to accelerate the payment of their invoices by providing liquidity through a third-party financial institution. In return, the financial institution charges a fee or discount to the buyer.
These fees are typically lower than factoring rates or other traditional financing solutions. This provides a win-win scenario for all involved, and it is especially beneficial for businesses that depend on their global supply chain to deliver on time.
Security
If a hacker gains entry to an organization’s network, they’ll likely target the crown jewels. This includes proprietary software code, financial and customer data, encryption codes, human resources information, and intellectual property. To reduce these assets’ vulnerability, organizations should use discovery and classification tools to locate databases and files containing these sensitive assets and take appropriate action.
Another asset that hackers may target is a company’s physical inventory, including construction materials, perishable goods, and industrial equipment. These assets are attractive for thieves due to their high value, demand, and ease of resale. Organizations should invest in a supply chain security program to minimize the risks, working closely with partners and vendors to monitor risks and prepare for disasters.
One way to secure these high-value assets is through Supply Chain Finance (SCF) products. Several entities offer these, including banks and dedicated SCF providers like Taulia. When choosing a provider, look for an experienced team that understands your industry and how to integrate with your business. You also want to consider the provider’s flexibility and existing network of suppliers.
Automation
Like the human body, supply chains contain various vital systems that must be coordinated and operated harmoniously to ensure optimal efficiency. The human brain could not be expected to control all of these processes manually, and if it did, its ability to perform high-level work would be severely limited.
Automating these supply chain workflows eliminates human error, reduces operational costs, and frees employees to spend more time on higher-level tasks that require a human touch, like forecasting trends, analyzing customer upsell opportunities, and developing client relationships.
Additionally, a well-implemented automation system will help enterprises minimize energy consumption and ecological footprints. This is possible through autonomous forklifts, warehouse drones, and intelligent inventory tracking systems that optimize transportation routes and maximize storage space.
When selecting a supply chain financing platform, look for one that offers automated solutions to speed up document processing and payment times. Ideally, your supply chain finance program will also provide sellers with other working capital financing options. Having this flexibility is essential in case an unexpected event occurs.
Flexibility
Flexibility is one of the most essential qualities for a supply chain financing platform. This includes a wide range of payment terms for Buyers and Suppliers and the ability to adapt to changing market conditions. A flexible supply chain means companies can change their delivery service time, product mix, or other factors without altering their financial plans.
Flexibility is also a crucial aspect when it comes to addressing short-term problems or opportunities that arise in the supply chain. This can include anything from a supplier’s delivery schedule to customer requests for extraordinary handling and packaging. A company must be flexible to respond to and manage these changes quickly.
Another feature that should be available in an SCF solution is the ability to offer flexible early payment programs for third-party and self-funded transactions. This flexibility allows buyers to optimize working capital and enables Suppliers to receive the cash discount they want when needed. Taulia offers both 0third-party and self-funding in a single, Supplier-friendly user experience to eliminate the need for Suppliers to switch between different funding models.
