Building financial strength into the supply chain needn’t be a complex or costly process, yet many corporations overlook this when considering the overall financial stability of their suppliers. For businesses that depend on a healthy supply chain and the timely and on-budget delivery of products and services, Supply Chain Finance can encourage competitive bids from new suppliers, and can help relieve cashflow strains of existing suppliers and contractors.
The Supply Chain Finance process
Increasingly, businesses are finding that they need to extend to longer payment terms with their suppliers in order to manage their cash resources more effectively. But since suppliers are seeking to obtain shorter terms from their customers, these conflicting objectives can sometimes put pressure on the customer/supplier relationship.
Supply Chain Finance, a mechanism whereby a lead contractor typically works with a financial institution such as a bank to provide financial support to its’ suppliers, is a logical answer for the many businesses that face these situations on a daily basis. But traditional Supply Chain Finance is often rejected as a solution because of the high costs of implementation for the main contractor and low take up by their suppliers.
The new generation of Supply Chain Finance: accessible and efficient
Whilst Supply Chain Finance isn’t a new concept, it has recently seen major changes with the introduction of a flexible and cost-effective solution from Platform Black. Where previously Supply Chain Finance might have been inaccessible for many businesses – with lock-in contracts and expensive integration costs – today it is available for all. No longer do businesses have to worry about the complexity of setting up Supply Chain Finance; there are no IT systems to be installed and maintained, no contractual lock-ins, and small business suppliers have full control and flexibility over which, if any, invoices are financed through the system.
The process works as follows:
- Upon receipt of an invoice from the supplier, the contractor approves the invoice, which is then uploaded to an online auction platform where a pool of investors bid to finance the invoice.
- When the auction closes, the face value of the invoice less a small percentage, which represents the finance cost and a transaction fee linked to the period the money is required for, is paid to the supplier.
- When the invoice is due for payment, the contractor simply pays the full amount due to Platform Black, which it distributes to the investors.
- The result? The supplier maintains a healthy financial operation – receiving cash quickly. The contractor is able to continue with its extended payment term policies, confident it is not adversely affecting its’ supply chain operation.
Putting control of cashflow back into the hands of businesses
The real power behind Supply Chain Finance is the fact that the business selling the invoices can define the maximum cost it is willing to pay for each invoice – it is never more, only less. This feature empowers businesses and encourages more suppliers to use the service as arranged by their customer – your business.
Supply Chain Finance from Platform Black empowers businesses, removing the need to commit their entire sales ledger and presenting a significantly more attractive means of managing cashflow and securing working capital.
Platform Black was voted Supply Chain Finance provider of the Year 2013. The company empowers businesses and encourages financially healthy supply chains through its innovative Supply Chain Finance solution. Through its online Invoice Trading platform, Platform Black helps businesses build financial strength into their supply chains. Unlike invoice factoring and discounting, Platform Black offers complete flexibility and transparency. Join the many companies that are moving their businesses forward and looking after their suppliers with Supply Chain Finance.