Supply Chain Finance is a financial tool offered by specialty finance companies to improve their client’s short term cash flow needs. It is offered to companies for growth purposes by stretching their payment terms up to 90 days, while providing the option to their suppliers to get early payments, and possibly improving their suppliers’ financial costs as well. In the U.S, this service has been growing in popularity due to the increasing complexity of globalization and the supply chain systems (supply chain is defined as a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer). It has particular added value to importers from emerging markets especially from Latin America and Asia in different industries although it works for domestic transactions as well. There are many advantages of using this flexible, innovative and unsecured funding method. We will cover the most relevant ones:
- Additional working capital for your business: Supply Chain Finance facilities providing additional working capital for your business by complementing your traditional bank line. This type of financing allows your business to grow by extending payment terms to their clients, buy more product with convenient terms for your suppliers and take advantage of growth opportunities amongst others with new and existing suppliers.
- Quick application process: A due diligence process for this facility takes up to 7 business days to be approved allowing your business to move quickly from one opportunity to the next. The supply chain finance application process requires the finance company to determine your company’s creditworthiness, cash conversion cycle, net margins and net worth to be able to offer the maximum number of days for repayment along with the facility amount and therefore for your suppliers’ invoices to be paid.
- A healthier, more financially and robust supply chain: It leads to greater reliability and certainty of supply chain and long term relationships with trusted suppliers.
- Flexible relationship with the client (your company): Supply Chain Finance allows your business to pay suppliers according to your business cash flow needs rather than restricting your business growth by imposing certain limitations under the lending covenants. This may happen with certain bank lines, which limits payments to suppliers at a predetermined percentage of your payables. The product is custom made to accommodate the client’s growth for qualified businesses.
- Non-intrusive solution with your clients: Supply chain finance facilities do not require the finance company to engage with your clients as it depends solely on your company’s financial strength and your company’s potential for growth.
- Inventory Financing: It allows qualified companies with strong financials to finance their inventory as part of the supply chain finance facility without the need to pledge it under collateral for funding.
- Encourages collaboration between buyer (your business) and seller (your supplier): it helps businesses agree on payment terms for the benefit of both entities as opposed to competition between your company and your supplier for the sole interest of one entity.
Supply chain finance will have a lot of demand in the coming months under this growing economy. It provides great benefits for the cost of funding structure and companies in the middle market space will find great value on it for growth and filling a gap their current lender is perhaps not fulfilling on their company’s cash flow. Summar offers supply chain finance to companies with annual revenues of $10M+. Revolving lines range between $200,000 to $3,000,000. Rates range between 1% to 1.50% per month.
For more information or to apply for a supply chain finance facility, click here.