What is Supply Chain Finance?
This article is a contribution from our content partner, PrimeTrade Supply chain finance allows businesses to get their suppliers paid quickly without affecting their own accounting or cash flow. Sometimes it is called SCF, supplier finance, reverse factoring, or dynamic discounting. These different labels all describe a similar process: In dynamic discounting, the financier is the buyer itself. All of the discount agreed to by the supplier for early payment is earned by the buyer using its own cash. In this situation, the invoice is simply paid early, and the buyer generates additional income. A win-win SCF is a win-win for buyer, supplier, and financier: Supply chain finance enables cash to move more efficiently through the supply chain: Basic supply chain finance Basic supply chain finance is the simplest and most common form of SCF today. A software platform is used to coordinate the three parties involved (buyer, supplier, and financier). 3 things to know about basic SCF Is SCF/reverse factoring a good thing? Yes. Supplier finance, or SCF, provides all the included suppliers with the same access to liquidity regardless of location and size. There is a reported $2.5 trillion per annum funding gap for smaller suppliers in emerging markets that supply chain finance can address. But basic SCF needs an upgrade to work better. That’s because early payments are not very early, and SCF programs can be painful to run in practice. Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
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