Understanding Supply Chain Finance

Supply Chain Finance (also known as Supplier Finance) can be an effective cash flow finance solution that businesses can use to inject additional working capital into their business. While Supply Chain Finance is a very useful business cash flow solution, many businesses are missing opportunities because they are not sure of what supplier finance is and how it works.

Explaining Supply Chain Finance

Supply Chain Finance (which is also referred to as Purchase Order finance, Supplier finance and reverse factoring) is a business finance solution that provides businesses with additional funding and finance based on their Accounts payables. Business finance firms like Fifo Capital free up a business’ cash flow and working capital by funding your business’ stock and inventory purchases on your behalf.

Behind the scenes, the key concept behind Supply Chain Finance is “to provide suppliers with access to advantageous financing facilities by leveraging the buyer’s stronger credit rating“.

By using a Cash flow finance solution like Fifo Capital’s Supplier finance, you can preserve the cash in your business for working capital, while paying your supplier’s invoices upfront and in-full.

How does Supply Chain Finance work?

Typically, your suppliers will invoice you with 7-30 day payment terms. A lot of times, there will also be a discounted term listed on the invoice – for example “Nett 14 days – 3%” – offering you a 3% discount on the total amount of the invoice if it’s settled in 14 days instead of the full term. This means that you have 0-14 days to make a payment and receive a 3% discount, or 15-30 days to make full payment.

To take advantage of Supply Chain Finance, a company simply uploads their supplier invoices to Fifo Capital. Fifo Capital then pay (on or before the due date) the full discounted* amount of the invoice to your supplier.

Once this process is confirmed, a repayment schedule is sent to your business with extended payment terms, often up to 90 days. This gives your business 90 days to pay Fifo Capital, putting less stress on your cash reserves and allowing for smoother ongoing cash flow.

* where a discount is applied

Who is Supply Chain Finance best for?

Supply Chain Finance (or Supplier finance) is best suited to businesses who are purchasing stock or inventory for re-sale. Historically, Supplier Finance works very advantageously for businesses who can negotiate volume discounts and early payment discounts, as these discounts can often more than neutralise the cost of financing. Companies in FMCG or with quick inventory turn around can benefit from a lower cost of stock that aligns with their sales cycle.

Why choose Fifo Capital for Supplier Finance?

By completing the form below, you can request a call from one of our Business Finance Specialists. During this call, we’ll work with you to learn how your business operates and what the most appropriate type of cash flow finance will be for your businesses circumstances. Whether it’s trade finance, supplier Finance, a term loan or a chattel mortgage, our experienced team will point you in the right direction, even if it means referring you to a different type of finance firm.

Businesses aren’t cut from the same cloth, and neither are their working capital and financial positions. At Fifo Capital, we create a bespoke solution for you that fits your business needs. When you partner with Fifo Capital, you have the assurance that we’re by your side.

Complete the form below for a no-obligation, finance discovery call with our business Finance Specialists today.

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