Supply chain finance (SCF) is a type of financing in which suppliers can get payment for their invoices in advance. Supply chain finance allows buyers and suppliers to maximize their working capital. It lowers the risk of supply chain disruption. It’s also referred to as reverse factoring.

Unlike other finance strategies, supply chain finance is set up by the customer rather than the supplier. Suppliers can obtain supply chain financing based on the credit rating of the customer. As a result, supply chain finance often allows suppliers to acquire it at a reduced cost.

Supply chain finance improves company efficiency for buyers and sellers in the sales business. Buyers are given more time to pay off their accounts, while suppliers receive faster access to funds due to them. The participants can use the cash on hand to fund further projects and keep their particular enterprises running smoothly.

How Does Supply Chain Finance (SCF) Work?

Supply chain finance works best when the buyer has a stronger credit rating than the seller. The buyer should obtain capital from a bank at a reduced rate. This advantage enables purchasers to negotiate more advantageous conditions with the seller, such as extended payment periods. Meanwhile, the seller can quickly discharge its products and obtain paid from the intermediary funding agency.

The following steps demonstrate the Supply Chain Finance (SCF) process:

Step 1: The buyer purchases products or services from the supplier.

Step 2: Apply using business information such as accounts and bank statements.

Step 3 – The supplier sends an invoice to the buyer, with payment due within a specified number of days.

Step 4: Buyer approves the invoice for payment.

Step 5: Supplier asks early settlement on the invoice.

Step 6: The system creates suppliers to simplify payments to them.

Step 7: The funder provides money to the supplier, with a minor fee subtracted.

Step 8: The supplier sends you their invoice as usual.

Step 9: The system registers suppliers so that payments can be made to them.

Step 10: Buyer pays the funder on the invoice’s due date.

What are the documentation necessary for Supply Chain Finance (SCF)?

Once you’ve determined your supply chain financing needs, you can create the following documents.

· Provide identity and address verification for both the owner and the business.

· Recent bank statements.

· Recent VAT/GST paperwork.

· Invoices from the last three months

· Sales ledger information for vendor.

Conclusion:

Supply Chain Finance (SCF) has become a critical strategic requirement for companies looking to maximize their supply chain efficiency, fortify their connections with suppliers, and foster long-term expansion. In today’s changing business environment, organizations can seize new chances for value creation, innovation, and competitive differentiation by adopting SCF solutions and best practices.