What Is Supply Chain Finance?

by Axton Global
Supply Chain Finance Import from China
Supply Chain Finance (SCF), also known as supplier finance or reverse factoring, is a financial solution that ensures suppliers receive early payment on their invoices, reducing the risk of disruptions in the supply chain. This mutually beneficial approach optimizes the working capital for both buyers and suppliers without the complexities of traditional financing methods.

Supply Chain Finance Meaning

Unlike traditional receivables financing, where the supplier initiates the process, SCF is set up by the buyer. In this arrangement, suppliers can access financing at a cost based on the buyer's credit rating, resulting in lower financing costs. This buyer-centric model allows for a smoother financial flow between partners, promoting better collaboration.

How Supply Chain Finance Works

To initiate SCF, a buyer partners with a finance provider, inviting suppliers to join the program. Technology-driven solutions now enable businesses to extend SCF to hundreds or even thousands of suppliers worldwide. Once the program is in place, suppliers can request early payment on their invoices, and the process unfolds as follows:

  1. Buyer purchases goods or services from the supplier.
  2. Supplier issues an invoice with a specified payment term.
  3. Buyer approves the invoice for payment.
  4. Supplier requests early payment on the invoice.
  5. Finance provider pays the supplier, deducting a small fee.
  6. Buyer repays the finance provider on the original invoice due date.

Benefits of Supply Chain Finance for Suppliers

  1. Optimize working capital by receiving early payments.
  2. Access lower-cost funding compared to other financing methods.
  3. Improve cash forecasting accuracy for better financial planning.

Benefits of Supply Chain Finance for Buyers

  1. Optimize working capital through harmonized payment terms.
  2. Enhance supply chain health by reducing the risk of disruptions.
  3. Strengthen supplier relationships by providing low-cost funding.

Flexible Funding

Some companies may choose to implement both SCF and dynamic discounting for flexible funding. This approach allows businesses to switch seamlessly between the two models based on their cash flow needs, providing a tailored financial strategy.
How to Defer Payments when Importing from China
With Sinosure insurance, you can get 120-days trade credit for your import from China.

Supply Chain Finance Q&A

Why is supply chain finance important?
SCF is crucial for optimizing working capital and maintaining strong buyer-supplier relationships, utilizing a third-party factor to facilitate early payments.

What's the difference between supply chain finance and factoring?
SCF, also known as reverse factoring, differs from factoring as it is initiated by the buyer, leveraging the buyer's credit rating.

How do I choose a provider for supply chain finance?
Consider factors such as the provider's size, flexibility, compatibility with existing systems, and the extent of their supplier network when selecting an SCF provider.

We help importers from all over the world to improve their trading terms with Chinese suppliers and extend payments to the supplier for 90 to 120 days using the Sinosure credit insurance tool

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