Buyers and suppliers can ease cashflow worries on their own terms
There are clear benefits to both parties. And, in a recessionary environment, those benefits look more valuable than ever. Most obviously, supply chain finance arrangements can ease cashflow worries.
In a difficult market, buyers are keen to hold on to cash for as long as possible; they may even want to extend their terms of payment. Conversely, suppliers need their invoices to be settled faster. Supply chain finance can help both sides achieve their objectives. Buyers settle their invoices on payment terms that their businesses can manage. Suppliers, meanwhile, do not have to wait for this settlement and control when they draw down the cash.
Supply chain finance arrangements also improve visibility. Transactions are managed through the provider’s technology platform, providing a valuable data feed on accounts receivable and payable – and enabling finance to forecast, and therefore plan, more effectively.
Importantly, this is non-recourse lending: with finance agreed against quantified invoices for products and services provided. Unlike with traditional bank finance, there is no need for additional collateral. The latter may, in any case become tougher to secure, as economic headwinds prompt lenders to become more conservative, and more expensive as interest rates rise.
There is also a potential cost advantage. The often-smaller supplier should be able to leverage the buyer’s better cost of capital.