The benefits of supply chain finance

Did you know that 80% of companies don’t use supply chain finance, despite the various ways it can support both buyers and suppliers?

Supply chain finance is the practice of using a financial middleman to help facilitate your supply chain. Stock is ordered as normal from a supplier, who then provides an invoice. The financial middleman pays off the invoice, and your business pays the middleman back in installments.

At Tungsten Network, we’re invested in the financial well-being of our clients, so we’ve provided this article to explain the benefits of supply chain finance (or SCF). We’ll look at why businesses should seriously consider using the practice, and explore potential reasons why it’s not more commonly used.

Why aren’t companies using supply chain finance?

Despite the low number of businesses using SCF, respondents to a Tungsten Network survey covering 76 different countries found that there was a significant interest in SCF.

So why aren’t businesses taking advantage of this financial solution? The same survey found most were unable to participate in SCF because buyers have hesitated to roll out programs to large segments of their suppliers. Unfortunately, this is a common challenge with bank-led SCF agreements.

The survey also revealed what suppliers expect from a supply chain finance programme, which implies a lack of these features in the current range of SCF options:

  • An easy-to-use portal
  • A cost-effective programme
  • Flexibility
  • Achievable DSO improvement

Chairman of Orbian, Tom Dunn, said “It is precisely to address these challenges, and thereby ensure that the 80% of suppliers that want to access SCF but can’t, that OTN is entirely focused.”

Orbian, an industry leader in SCF programmes, is working with Tungsten to create OTN — a fully customisable solution that lets businesses get exactly what they want from SCF. OTN will allow users to enjoy all the benefits of supply chain finance with as few of the drawbacks as possible.

The benefits of supply chain finance

There are many benefits of supply chain finance, but we’ve highlighted three of the most important below:

1. Financial flexibility for buyers

A normal stock order would require an invoice to be paid within the month, if not sooner. An SCF agreement allows buyers to extend payment terms if necessary, allowing a greater amount of financial flexibility.

A business that can be flexible with its cash resources can adapt to changing circumstances much more effectively. Using SCF means a business doesn’t need to reserve all its money to pay for stock invoices.

2. More control for suppliers

There are benefits to supply chain finance for suppliers as well as buyers. A primary benefit for suppliers is the control they have over repayments.

With most SCF programmes, suppliers are given a view of the buyer’s cash flow, so they know when to expect or request payments. This view also helps support suppliers’ cash flow management, allowing them to invest more carefully within their business.

3. Stronger buyer/supplier relationships

SCF means that buyer and supplier are more deeply invested in each other’s success. If a buyer is struggling, their inability to pay back the SCF agreement harms the supplier. If a supplier goes out of business, the buyer loses a critical source for their stock.

The financial flexibility that a supply chain finance agreement provides means that both parties might even consider a mutual investment to guarantee their continued shared success.

Discover how OTN can help your business succeed

Tungsten Network CEO, Paul Cooper, said, “Supply chain finance provides many benefits to businesses, and we believe access to it should be much more democratic. Often those who would benefit the most from SCF have been unable to access it. With our partnership with Orbian, OTN is changing that.”

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