Supply chain factoring is a financial transaction that involves the sale of a supplier’s invoices to a third party. This mode of revenue generation is also referred to as reverse factoring because the sale of invoices to the third party is initiated by the buyer and not the business owning the invoices, as is the case in typical factoring.
In supply chain factoring, the buyer sets up the platform on which suppliers upload their invoices. Through this platform, the suppliers can decide on which invoices they would like to have settled early. Once the suppliers pick the invoices whose payments they would like to receive early, the buyer then notifies their preferred financial company of the invoices they ought to settle. When the maturity date of the invoices reaches, the buyer wires the funds to the financial company. It’s worth noting that the supplier typically covers the fee charged by the financing company for an SCF transaction.
Benefits of Supply Chain Financing
To the Buyer
For a business to operate smoothly, it must have working capital. If you’ve got a supplier and your supplier insists that you pay certain invoices quickly, you may find it stressful to operate after making the payments. If you contact a third party and have it pay your supplier on your behalf, you effectively avoid having to struggle to run your business. As such, supplier chain factoring affords the buyer the opportunity to free their cash flows and run their businesses smoothly.
To the Supplier
Just like all other business people, suppliers need cash inflow to manage their operations. If a supplier agrees to the supply chain financing option suggested by their client, they can get the money they need whenever they need it.
Supply chain factoring enables all the parties involved to run their businesses smoothly. Given that it also improves the relationship between the buyer and the supplier, if you are a buyer and want to strengthen the bond between you and your business’ supplier, finding a company that can offer you exceptional supply chain financing would be wise.
Guide on How to Find the Right Financial Company to Offer You Supply Chain Financing Services
If you’re a buyer searching for a financial company to pay your supplier, some steps should guide your search. These steps include:
● Seeking Referrals
When searching for a financial company to settle your supplier’s invoice, you should begin your search by seeking referrals. By seeking references, you’ll be able to shortlist financial companies that are worth looking into.
● Conducting Thorough Background Checks
Once you’ve got your references, you should make a point of conducting thorough background checks on them. Reliable companies often have clean backgrounds. Thus, by carrying out this step, you can identify which firms are the most reliable.
● Going Through Their Past Clients’ Reviews
After identifying the reliable firms, you should check their past clients’ reviews. If you carry out this step, you’ll be able to determine which reliable firms offer top-notch customer service.