Managing A Business's Working Capital Needs With Its Suppliers

1. Managing A Business's Working Capital Needs With Its Suppliers Managing a business's working capital needs with its suppliers is at the core of every successful Supply chain finance program. It benefits both parties, buyers and suppliers. Buyers are generally focused on extending their days' payables outstanding (DPO). At the same time, suppliers would prefer to get paid as soon as possible to minimize the number of days sales are overdue (DSO). This dilemma can be resolved through supply chain financing, which offers buyers and suppliers several advantages. By allowing the customer to extend its payables and simultaneously accelerate payment to the supplier, fintech businesses help both the buyer and supplier increase their working capital. Both parties gain from this, as there is more liquidity and less fluctuation in the timing of payments. With SCF, buyers consent to give a bank or other external financier permission to finance their suppliers' bills leveraging buyers’ credit worthiness. Additionally, SCF offers specific benefits to all participants by supplying short-term finance that maximizes working capital and provides liquidity to both parties. While providers get their money more quickly, customers have more time to make up their debts. The parties can use the available funds for other endeavors to keep their respective operations functioning well on either side of the equation. Advantages that buyers have are: 1) Buyers benefit from longer payment terms and an improved cash conversion cycle with supply chain financing, which improves their working capital position. 2) Buyers can lower the risk of a supply chain disruption by providing their suppliers with affordable financing. 3) To establish stronger bonds with suppliers, buyers can assist them in increasing their working capital. 4) To provide their procurement team with a competitive edge while negotiating business terms, buyers can offer suppliers supply chain financing. 5) Sudden business accelerations can make it difficult for suppliers to keep up with demand; supply chain finance puts firms' supply chains in a better position to absorb a rise in business. It can also encourage suppliers to make R&D investments, which might ultimately help the company. 6) Buyers can enjoy early payment discount by paying suppliers early. 7) With fintech platforms, buyers can further enhance the yields and unlock economic value with dynamic discounting and rebate structures. Besides, digitalized programmes are scalable and can provide financial inclusion to long tail suppliers as well. Advantages that suppliers have 1) Suppliers can benefit as well from DSO improvements to accessing low-cost funding – all without affecting their existing credit lines.

2. 2) The supplier financing cost is lower than factoring since supply chain finance, unlike other types of receivable's financing, is based on the buyer's credit rating. 3) Suppliers can have improved cash flow which puts them in a better position to expand their businesses and invest in innovation. 4) Suppliers can estimate their cash flow more accurately and make better business decisions with a solution that provides more assurance on the timing of payments. 5) Supply chain finance programs that use advanced technology can give suppliers complete visibility into the payment process while also boosting operational effectiveness. Your business can become more operationally efficient and more financially optimized by integrating finance and supply chain activities. Since bank-led programs are designed to serve investment-grade program participants, supply chain finance has traditionally not been an option for smaller suppliers. Thankfully, this is changing. The advantages of supply chain finance are now available to all suppliers via digital solutions. Supply-chain financing options are now becoming available that allow suppliers to be paid quickly, buyers to extend their payment terms, and the funder to provide cost effectively to the entire supply chain.