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Corporate Capital | Supply Chain Finance

By October 4, 2023November 14th, 2023Funding

Are You Having Supply Chain Issue and Need Cash Fast?

Shortly after the COVID-19 pandemic outbreak, businesses began suffering the effects of supply chain shortages.

Shipping containers became relatively scarce during periods of economic strain and uncertainty. When you factor in closed ports, fewer port workers, and a trend toward lean inventories before the pandemic began, it’s clear why shortages occur.
Many factories around the world slowed down in response to rising COVID-19 cases. They’ve also been dealing with repeated lockdowns and even when open, production was slow since fewer workers were generally available due to illness or quarantining upon exposure.
So what’s the solution for these small businesses suffering from a lack of materials and a lack of cash? You can look for alternative financing, or better yet, ramp up cash flow for work that’s already been done with invoice funding options.

Welcome to invoice funding

With on-demand cash, you can bypass other vendors needing materials from your supplier by being able to pay first, or even before receiving your shipment. If you can’t get approved for bank financing, or don’t have time to go through the months-long approval process, there are plenty of alternative finance options available. Invoice funding is one of the simplest because it uses cash you’ve already earned.

Instead of waiting on long payment terms, you can receive cash for your invoices in days (less a fee) – instead of months. Then your customer pays back the factoring company according to the original payment terms. Being first in line for supplies is critical to maintaining a product-based business in the face of supply chain shortages. This type of business loan is also sometimes known as accounts receivable financing or invoice discounting.
What is supply chain finance?

Supply chain finance (or ‘supplier finance’) is a type of cash advance similar to invoice finance and based on the credit rating of companies in the supply chain. It’s a way for smaller businesses to benefit from the higher credit scores of their buyers and for buyers to lengthen their payment terms

Supply chain finance is a mutually beneficial operation for both buyers and suppliers. It helps both parties stabilize their cash flow. It’s a collaborative process — the lender helps both the buyer and the supplier, and all three parties have an arrangement together. That’s why supply chain finance is not the same as invoice finance, even if it might seem similar from the supplier’s point of view.

Why your business needs supply chain finance

Companies that don’t use supply chain finance often suffer from poor working capital performance, reduced working capital strategies, poor supplier relations and delays caused by manual processes

Companies that utilize modern supply chain finance solutions can thrive because they are able to extend payment terms and hold on to cash for longer. Those who continue to succeed also leverage multiple financing options and who are making digital the default where with a modern supply chain finance platform suppliers and buyers can all view and understand who has been paid and what the discount is.

The physical impact of stressed supply chains is now hitting many businesses hard and is likely to do so well into 2022. A cash flow crisis is likely to follow in the next six-12 months as margins are squeezed leaving businesses with shortfalls in working capital.

Businesses must forecast, plan, and speak to lenders now if they see any financial challenges ahead.

Types of invoice finance

There are two types of invoice financing available to businesses; invoice factoring and invoice discounting, which give businesses the freedom to choose how much control they have over their finances.
Invoice factoring is the product where a lender is most closely involved. They will provide ‘credit control’ services to ensure your customers pay on time, which could be exactly what you need to focus more on your business, instead of chasing late-paying customers. Note that your customers will know you’re using a factoring provider. A plus is that Factoring providers can credit check potential customers for you.
Invoice discounting is when you do the credit control for any payment made to your account. It’s the most straightforward form of invoice finance but can also be more time-consuming. Invoice discounting is generally available to more established businesses with higher turnover.

Accessing invoice financing

Invoice financing is usually offered by online lenders and fintech companies. Compared to other types of business loans, banks are less likely to provide invoice financing.To apply for invoice financing, you may need to provide basic information about your business, business bank statements, business financial statements, invoices you’d like to finance and personal and business credit scores.