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Supply Chain Finance can also be known as Supplier Finance or Reverse Factoring. The term “supply chain” in this context is used to refer to the network of organizations and activities relating to the production, distribution and paying for goods and services with one or more suppliers to a single customer. For example, a large company present of numerous smaller companies. “Supply Chain Finance” is engaged in providing finance to a number of supplier companies, within a supply chain under one umbrella mechanism that has been initially set up by the customer at the top of the supply chain.
Examples of Supply Chain Finance was in a supermarket to buy products from a variety of smaller suppliers. The supermarket will arrange Supply Chain Financing agreement with funding such that all their suppliers have the ability to access finance under the umbrella agreement. This is often provided at competitive rates which reflect the size of supermarkets the company rather than the size of the company supplier. In this way, suppliers benefit from the arrangement as they are able to access finance at a much lower rate than they would normally be able to achieve in itself.
Some arrangements can be as simple as financing outstanding sales invoice to the store or similar large enterprises, but in some cases may be other services bolted on arrangements to improve the management of the entire supply process.
Benefits of Supply Chain Finance
Benefits of Supply Chain Finance to large companies organize it because of their suppliers is that they are able to enjoy a period of credit from their suppliers. These are funded at competitive rates by individual suppliers which may not have been able to achieve in his own right. This will encourage its suppliers to continue to provide the level of credit when they may not otherwise have been able to afford it.
key benefit of perspective suppliers within the arrangement is that they are able to access finance at rates that would normally reserved for companies that are much larger, for example, national or global supermarket.
In recent times we have seen several examples of this type of arrangement established with several major companies, and these kinds of arrangements can be provided with a number of funders also provide more traditional invoice finance and factoring facilities.
Alternative supply chain & Factoring Reverse Factoring
However, the Supply Chain Finance or Reverse Factoring arrangements may not always be the right answer for a particular supplier that it can often be other issues that cause the supplier to seek a facility that is independent of their clients. Examples might not want their funding to connect with their customers. The record of Supply Chain Finance arrangements can not be agreed among suppliers to specific business and each situation must be examined on its own terms and relative to other options available independently within the market.
The Future
Although Supply Chain Finance seems to have taken off relatively slowly in the UK so far there are examples of new arrangements come as the product is likely to feature increasingly in financial Invoice.
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