Supply chain finance benefits both merchant wholesalers and the suppliers they buy from.
Companies that offer supply chain financing to their suppliers through a third-party financial institution or other group gain a major advantage: extended payment timelines. At the same time, the suppliers quickly receive payment on accounts receivable invoices. Both the supplier and purchaser enjoy improvements to working capital and generally improved liquidity.
This financing option is notably valuable in times of uncertainty. Issues such as variable order volumes and the ongoing trade war with China mean the overall marketplace is increasingly volatile. Tools like supply chain financing can help address these concerns and leave both merchant wholesalers and their suppliers in a more stable position.
Understanding the answers to common questions about supply chain finance can support your company as it makes an informed and positive decision about how to utilize this powerful and dependable finance option.
How does supply chain finance work?
Supply chain finance involves three parties:
● The purchaser: Your organization.
● The supplier: The company from which your organization purchases inventory.
● The financier: The bank that your organization has a relationship with, which has agreed to offer financing for supplier invoices that your business provides to it.
A supply chain finance program can help make operations smoother in general and especially during periods of uncertainty. By financing your invoices through a bank or other financial institution, your organization can free up available funds while still promptly paying bills. This improves working capital management. Your suppliers also receive funding on a short timeline, which can strengthen the supplier relationship.
Who benefits from supply chain finance?
When implemented correctly, supply chain finance benefits your company and its suppliers. It is important to note that you can enter into a supply chain finance program with more than one supplier. Companies that take advantage of this option can enter into arrangements with several key or preferred suppliers.
Your organization can arrange longer payoff terms with the financier than may be possible with your suppliers while also paying invoices promptly. This makes it easier to manage finances and maintain a stable position. The suppliers will have more cash on hand, increasing liquidity, than they would if your organization waited until the due date to pay the invoice.
Along with the obvious economic benefits, supply chain finance can also build better relationships between suppliers and merchant wholesalers. Your vendors know they can count on fast payment, while your organization receives the inventory it needs to maintain normal operations. The collaboration required to enter into a supply chain finance program helps to build positive connections between businesses.
What should I be considering in terms of supply chain finance?
Finding a dependable financier is vital for any supply chain finance program. Your company should seek out a financial institution that offers terms that align with your financial needs and provides support as your agreements with suppliers develop and change over time.
Securing supply chain financing means finding the right partner. Comerica Bank offers supply chain financing programs in line with the needs of both merchant wholesalers and their suppliers, along with top-notch customer support and service every step of the way, even as the economy shifts, changes and grows. To learn more, get in touch with our knowledgeable staff today.
