Supply Chain Finance - Meaning, Process and More

 

Supply Chain Finance is a type of finance that helps companies manage their cash flow. It helps businesses optimize the use of their resources and capital, by providing access to working capital, financing for suppliers, and access to financial markets for businesses. Supply Chain Finance helps companies reduce their risk, lower their costs, and improve their financial performance. It can also be used to help companies manage relationships with suppliers and buyers, to ensure that all parties benefit from the transaction.

Three individuals are typically involved in a SCF: the seller, the buyer, and the lender. The vendor "sells" the invoice to the lender in exchange for a reduction in payment. The buyers' credit standing is crucial in this situation. Since there is no chance of a default on the payment, lenders feel more secure paying the bills submitted to huge corporations and MNCs. Due to their strong negotiating position, purchasers can obtain more favorable terms from sellers regarding the purchase price and the timing of payments. Quick production and delivery are also encouraged by the buyer's assurance of the lender's prompt payment.

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