More and more companies are putting supplier financing on their agendas... and rightfully so.
Supplier financing can help businesses optimize their working capital, reduce costs, provide liquidity to suppliers that need it, and practice corporate social responsibility.
A couple months ago, Treasury Peer published “Supplier Finance for Dummies” which, in recognition of the growing adoption of supplier financing tools, explains the basics, history, benefits, growth, and future of supplier financing. Here are some of the highlights:
1) Supply Chain Finance and Dynamic Discounting
There are numerous tools that fall under the term ‘supplier financing,’ but SCF and DD are two of the most important. Supply chain finance is a way for corporations to use third-party cash to pay their supplier early, so that they can focus on working capital, or other initiatives. Dynamic discounting allows the buyer to use their own cash to pay invoices early exchange for a discount.
2) Corporate Responsibility
Many companies are recognizing that the financial health of their suppliers is part of their broader corporate social responsibility. They are looking to tools such as supply chain finance and dynamic discounting as part of a responsible strategic approach to their supplier base because they provide a mechanism to inject the liquidity they require.
3) Engagement of Key Stakeholders
Successful implementation of supplier financing solutions requires the coordinated effort of various key stakeholders within the organization, including Procurement, Treasury, Finance, Shared Services, Legal, and IT. Excellent communication with external stakeholders such as suppliers is also essential to ensure that the solution works for everyone.
4) The Future
In the near term, cloud-based platforms will increasingly prove to be intuitive, easy to deploy, and simple to use. Multi-funder legal structures are making it possible to source the funding for supply chain finance from a number of different sources, such as banks, the company itself, or institutional funds that are looking to invest. In the long term, developments are taking place to ensure that suppliers always have the opportunity to accelerate invoices, regardless of who funds the early payment.
For more information on the different flavors of supplier financing, check out this recently released eBook which discusses dynamic discounting, supply chain finance, and much more.