Supply chain finance has brought about a massive transformation in the way corporates and suppliers interact. Not only has it eased the financing process but it has also ensured that both parties can transact in an effective and efficient way. Nevertheless, before we understand how it has unleashed numerous benefits, it is vital to know what supply chain finance truly entails.
What Is Supply Chain Finance?
A supply chain essentially involves three parties- the buyer, the seller, and the financing institution. The buyer purchases a set of goods from the supplier and promises to pay them at a specified maturity date, which usually ranges between 30 to 60 days. However, if the suppliers require to be paid earlier than this, they can request instant payment for the invoice approved by the buyer.
Now, the buyer has two ways of paying the supplier. These are:
- The buyer may choose to pay the supplier immediately in return for a discount. The earlier the payment is made, the greater the discount that can be availed. This process is known as dynamic discounting and simply utilises the excess cash available. KredX Early is one such product that enables buyer or corporates to deploy their surplus treasury into early payment for their suppliers.
The “dynamicity” here refers to the choice of both the buyer and the seller has to decide the discounts based on the payment date for the delivered product/service. Generally, the earlier the payment date, greater the discount rate.
- The buyer may redirect the payment to a financing institution which will buy the supplier’s invoices, deduct a small fee, and then make an immediate payment. However, the buyer is not under any pressure to pay the financing institution instantly. They can make the payment by the end of the original maturity date. This is termed as supply chain finance.
- This mode of conducting payment operations is immensely advantageous for both, the buyers and suppliers.
Benefits of Supply Chain for Buyers
For buyers, this form of financial supply chain management has multiple advantages. Due to the longer credit period, the buyer is able to:
– Stabilise supply chain
– Optimise working capital
– Generate positive cash effects\
– Improve credit rating
– Increase liquidity
Benefits of Supply Chain for Suppliers
For suppliers, being provided with early payment solutions seems to be the only obvious benefit. But, apart from this, they prosper by being able to:
– Reduce pending bills
– Avail attractive financing rates
– Lower financing costs
– Make flexible decisions
– Improve efficiency
Not only this, if managed properly, this type of supply chain management can also help develop trust, build confidence and thus, strengthen the relationship between the buyer and the supplier. This would mean that they can work on better terms and over an extended financing period in the future.
KredX Early is a zero-risk treasury management solution based on the concept of receiving discounts through Early Payments. This provides a risk-free alternative option to treasuries of large corporates to deploy surplus funds since the surplus is invested in invoices of the buyer’s own suppliers.
Reduction in budgeted expenses = Direct impact on the bottom line
How KredX Early Works
- Treasury surplus is deployed through our platform towards early payment to suppliers at no risk and high returns
- Approved invoices are offered at a discounted rate by suppliers on a need basis
- Corporates review the discount bids displayed on the KredX Early Dashboard
- Payments are made towards the desired invoices depending on the availability of surplus funds
- Corporates make a zero-risk profit on the discounted invoices
In a world where businesses struggle with stiff competition, supply chain finance offers a secure, cooperative, and judicious way to ensure that everyone involved in the process, stands to gain from it. It isn’t just a win-win for buyers and suppliers. It is a triumph for their businesses and their customers as well!