Supply Chain Finance: Key Principles and Best Practices

Dec 29, 2023 - 10:41 AMAuthor - Admin


Supply chain finance is a special category of financing that optimizes cash flow inside the supply chain environment. It facilitates early payment to suppliers and thereby enables companies to unlock the value trapped in their supply chain. It is performed based on certain Key principles in supply chain finance. Read to know more about the principles that help optimize financial processes and strengthen supply chain relationships. 

Invoice discounting 

It involves accessing immediate funds by selling accounts receivables of a business to a financial institution at a fixed discount. This method or basic principle helps increase cash flow as it converts outstanding invoices into cash. This helps companies to meet their financial needs. 

Active discount platforms 

The efficient supply chain financing principle makes the best use of active discount platforms that offer buyers the ability to provide suppliers with early payment discounts and they should prompt payment in return. Businesses can go for a negotiation and execution of discount terms. This technique promotes optimizing supply chain cash flow for both suppliers and buyers. A centralized and automated space is made available to manage early payment options. 

Electronic data interchange 

This is a tool enabling the exchange of documents through electronic means between trading partners. Invoice submission and processing are streamlined while decreasing manual intervention and increasing efficiency. It has been developed for Sustainable supply chain financing and to increase accuracy. 

Best practices for supply chain financing

Enhancing supply chain liquidity is the motto of SCF techniques and practices. Here we list out certain practices that ensure seamless transactions and smooth execution. 

Agreement and setup

This is one of the best practices being followed in the supply chain finance platform. Here, the persons involved in the program, such as the buyer, supplier, and lender enter into an agreement, which outlines the rules and regulations of the program. It can include the payment terms, discount rates, and other significant information that might complete a contract. 

Invoice verification

This is one of the Global supply chain finance trends wherein an invoice is generated based on the agreed-upon terms and conditions. It is generated by the supplier while delivering products or services to the buyer. It is the buyer verifying the validity and accuracy of the invoice and ensuring that it aligns with the finance program terms. 

Recommended read: International Trade Finance: Types, Benefits & How It Works

Invoice submission

Once the buyer has verified the invoice, it is supplied to the financial institution by the supplier. It can be done through an electronic platform or sent through secure channels. 

Evaluating the creditworthiness 

The financial institution that offers the financial programs checks the buyer’s credit history and validates the details of the invoice. The buyer’s financial stability and payment history are evaluated and validated.

Early payment option

The financial institution checks whether the invoice meets the norms and passes the credit limit evaluation. Then, an early payment facility is offered to the supplier, which can be paying a part of the invoice amount in advance. 

Supplier acceptance

The supplier has to check the early payment offer and decide whether to receive the offer. If they decide to accept the offer, they can get early payment from the lender, which will enhance their cash flow and liquidity.

Payment settlement

The amount that has to be settled down with the lender at the pre-determined due date is done by the buyer. 

Reporting and tracking

In the whole process of supply chain financing, stakeholders can access real-time reporting and track transactions. Hence, they can see the payment status, early payment offers, and financial measures, which enables excellent monitoring and analysis. 

Benefits of supply chain finance

Let’s know the major benefits of this Trade Finance Service and learn more about the Future of supply chain finance

Increases cash flow and working capital 

This Trade Finance Service helps companies optimize their cash flow by streamlining payment terms and cash conversion periods. Working capital in supply chain finance isenhanced a lot and enables cash flow for growth initiatives or different operational requirements. 

Improves supplier relationships 

Supply chain finance models and programs facilitate early payment options to suppliers. This improves relationships as well as trust between buyer and supplier. Suppliers are offered a reliable cash flow which helps companies to manage strong partnerships and negotiate favorable terms. 

Access to discount financing platforms 

Logistics finance provide suppliers with an alternative to bank loans, but it can be expensive. If they leverage Supply chain finance management programs, they can access finance at discount rates. 

Decreases the amount of risk 

Supply chain finance is designed and developed to help both buyers and suppliers lessen the risk of delays in payment or non-payment practices. In this platform, suppliers are guaranteed to get timely payment through early payment options

Hope this Supply chain finance overview has given you valid insights about the platform and its practices.


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