What is supply chain finance?

Supply chain finance (SCF) is an innovative way to increase your working capital and reduce risk.

SCF allows your business (the buyer) to extend supplier payment terms. Some call it supplier finance or reverse factoring. It’s a set of solutions designed to optimise your cash flow by working with the dynamics of “Days Payable Outstanding” (DPO) to free up working capital trapped inside your supply chain.

Put simply, SFC lets your suppliers sell their invoices to a “bank” at a discount. They get paid quicker; you get to pay later.

This creates relationship balance – you optimise working capital by extending your DPO and your supplier receives early payment. SCF does not impact negatively on the balance sheet of either buyer or supplier. And because the banks deals with the buyer – usually a less risky prospect – any associated fees to the supplier are substantially lower than traditional forms of funding.

What supply chain finance is not

Supply chain finance (SCF):

  • is NOT traditional
  • is NOT a loan or other financial debt
  • is NOT an early payment program, dynamic discounting or factoring
  • is NO cost to the buyer (you) for the life of the program.

SCF is truly an extension of the buyer’s payment terms – a non-recourse true sale of the supplier’s receivables.

There are no lending implications for either buyer or supplier, and no associated balance sheet implications.

SCF does not rely on a buyer negotiating preferential payment terms with the supplier (a practice that reduces the overall cost of goods at the supplier’s expense). And SCF differs from factoring where a supplier sells their invoices to a funder (on a recourse basis) at an agreed percentage of their face value.

How is supply chain finance implemented?

Supply chain finance (SCF) is based on buyer-side implementation of an SCF “invoice trading” platform.

The buyer invites suppliers to participate in the SCF program. When a supplier agrees to be on-boarded, their finance team is trained on how to use the processes and tools needed to facilitate invoice trading (selling) on the platform.

It’s critical that any on-boarding to the SCF program is efficient, simple, has beneficial outcomes for the supplier and is correctly matched to funding partners. That’s where Open Supply excels: providing access to multiple funding sources so each supplier can be partnered with a source that understands their business

What are the benefits of supply chain finance?

Supply chain finance (SCF) is one of the few finance dynamics that works for both sides of the supply chain. Buyers can extend their payment terms. Suppliers can opt to be paid earlier. It’s a true balance between trading partners.

SCF eliminates the negative impact of extended payment terms while allowing suppliers to be paid almost immediately. Typically, when the buyer approves the invoice or invoices, the supplier can accelerate payment on none, one or all outstanding invoices with that buyer.

Because SCF is based on the buyer’s credit standing, the supplier gets access to finance at a much lower rate than traditionally available to them. And for the buyer, SCF is a NO cost finance option from end-to-end – from consultation, evaluation and implementation through on boarding and execution.

What we do

Supply chain finance (SCF) is not “one size fits all”. A successful SCF program demands a clear and precise analytical approach to determine the optimum fit to achieve each buyer’s goals.

At Open Supply, we scope and complete the analytical process and provide a strategic plan orientated to both buyers and suppliers. We work with each buyer’s finance and procurement teams to aid in understanding the program’s benefits and implementation. We provide a planned methodology and assist with negotiating supplier on-boarding

Our specialist expertise – the construction industry

At Open Supply, we’ve focused our knowhow on advising and implementing supply chain finance (SCF) programs and platforms to meet the specific challenges of the construction industry. Our specialist expertise is working with all participants in the supply chain across the varied associated sectors.

Why now? Despite SCF’s growing popularity, the complex nature of payments systems within the construction and associated industries has hindered SCF take-up in the sector worldwide. Technology innovation and government initiatives are now helping change long-held perceptions. Construction invoice claims are finally investment worthy and ripe for acceleration through SCF platforms.

Construction prime contractors and subcontractors can now benefit from the advantages of improved working capital and cash flow, and potentially stronger balance sheets to fund growth and expansion on both sides of the equation.

Maximising working capital effectiveness through SCF programs is set to become the hallmark of successful enterprises in the construction industry.

Why not discover more about how Open Supply can work with you and your suppliers to optimise your growth opportunities at No cost to you? Contact Us