Supply Chain Finance
Introduction
At its core, supply chain finance works by getting everyone’s cash in the right place at the right time.
In the first instance, the buyer enters into an agreement with a supply chain finance provider and identifies suppliers to participate in the program, usually based on the size of the spend or the strategic value of the supplier. The buyer then extends its supplier agreement payment terms.
The buyer invites the suppliers to participate and implements a supply chain finance program that facilitates the suppliers’ invoice selling (or trading). Once the program is set up, suppliers can request early payment on their invoices.
How does it work
The buyer is charged a small fee, but this is offset against the early payment discount received from the supplier and results in a ‘zero’ cost of funding.
01. Supplier sends invoices to the buyer.
02. The buyer approves the supplier’s invoices and uploads them to the SCF system.
03. The supplier has complete visibility of the approved invoices and selects the invoices to be paid early or wait until the invoice has matured to receive payment.
04. The funder receives the invoice to be paid early and then pays the supplier based on the agreed-upon discount rate directly into the supplier’s bank account on the next business day.
05. The buyer then pays the funder the invoice at maturity.
01. Supplier sends invoices to the buyer.
02. The buyer approves the supplier’s invoices and uploads them to the SCF system.
03. The supplier has complete visibility of the approved invoices and selects the invoices to be paid early or wait until the invoice has matured to receive payment.
04. The funder receives the invoice to be paid early and then pays the supplier based on the agreed-upon discount rate directly into the supplier’s bank account on the next business day.
05. The buyer then pays the funder the invoice at maturity.
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