What Is Supply Chain Financing?
Supply Chain Financing is a tech-based solution that helps in lowering financing costs and improves business efficiency in a sales transaction. It automates and tracks transactions, invoice approvals, and settlement processes from start to finish. It allows buyers and sellers a certain amount of flexibility and leeway allowing for liquidity within both parties.
Suppliers gain faster access to their owed monies and buyers have more breathing room to settle their debts. Effectively, keeping business cash flow going strong on both sides of the spectrum.
A versatile segment on Trade Finance, supply chain financing is part of a set of services available from Funding Societies to assist in the growth of Malaysian SMEs.
How does Supply Chain Financing work?
Supply chain financing offers a win-win situation for all parties involved. When you have a business, for example, Company A that sells baked goods. You as a business owner need a steady supply of butter and flour. You, therefore, engage a supplier that is Company B to purchase your butter and flour.
Company B issues an Invoice to you, but you as Company A lack the cash reserves to pay off the invoice. That’s when you turn to a financing company. They will act as an intermediary to pay up to 80% of the invoice value, money owed to Company B and set up a payment plan with you, Company A. Once you have made all the payments to the financing company, they will pay the remaining 20% unpaid to Company B minus any fees.
If you were to explore this option with Funding Societies, here’s how it’ll look :
- Supplier invoices the debtor.
- The supplier sells the invoice to Funding Societies.
- Funding Societies pays the supplier 80% advance on the invoice.
- The debtor pays Funding Societies 100% of the invoice value.
- Funding Societies pays the supplier the remaining 20% minus any fees.
This way neither of the companies is pressed for cash and can function at optimal levels.
What you need to know about Supply Chain Financing
- It is not a term loan
Supply chain financing is an extension of a supplier’s accounts receivables. It accounts as a true sale of accounts receivable. The supplier in this case has relinquished hold on the purchase order and invoice to the financial institution.
- It is not factoring
Supply chain financing is often actually referred to as reverse factoring. 100% value minus a very small fee from the financial institutions are paid back to the supplier.
- It works for all companies
Supply chain financing provides value for businesses of all sizes and credit ratings, especially SME suppliers.
Check us out at Funding Societies to learn more about business financing solutions that can work for you!
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