Supply Chain Finance (SCF) is a process that encompasses at least three parties: buyers, suppliers and funders. The primary goal of the SCF process is to help bridge the gap between buyers and suppliers by providing a solution that improves working capital and cash flow. As both buyers and suppliers experience payment pressures, their core needs are similar. Buyers invariably wish to have extended payment terms to help lessen pressure on their outgoing cash flows, while suppliers wish to collect their payments as fast as possible for the same reason, which will enable them to purchase and sell more goods. When a buyer’s working capital and cash flow management objectives conflict with those of their suppliers, it creates this classic tension and increases supply chain liquidity risk.
Supply Chain Finance is a financial solution that meets the needs of both buyers and suppliers. Suppliers are paid quickly, albeit at a discount, and buyers can extend their payment terms, increasing their free cash flow. Through SCF programs, finance providers help alleviate cash-flow issues faced by buyers and suppliers by enabling both parties to agree on a pre-determined payment schedule. The finance provider pays the suppliers the invoice amounts, less any discounts and finance charges, and subsequently collects the invoice payments from the Buyer as per pre-agreed terms and conditions.
Through the SCF solution, the supplier receives their money on an early settlement schedule at an agreed-upon discount, while the buyer pays the finance provider the full invoice amount at the original maturity date. Through the SCF solution, the buyer’s free cash flow is increased by extended payment terms, which can generate higher returns and enhance corporate liquidity. Improved liquidity for both buyers and suppliers can make them more equipped to deal with short-term financial risks and also strengthen their long-term financial health. In some cases, the SCF provider provides incentives to the buyers for their participation in structuring and administering SCF programs.
Creating a win-win solution for buyers and suppliers is the primary aim of supply chain finance. Buyers win by being able to improve their cash flows, while also strengthening their relationship with their suppliers. Suppliers win by having their outstanding invoices paid sooner, enabling them to reinvest the working capital back into their business.
Supply Chain Finance is a powerful cash management solution, which has been made accessible for more and more businesses. SCF brings simplicity and security in supply chain management and strengthens the relation of the supplier and buyer by accelerating payments and improving working capital of both parties. Thus SCF has become an efficient option for businesses seeking optimal cash management strategies that can boost liquidity, optimize cash management, and improve supplier-buyer relationships and satisfaction.
Tawreeq Holdings Limited, with presence in the UAE, Luxembourg, and Morocco, specializes in comprehensive Supply Chain Finance (SCF) solutions for Small and Medium-size Enterprises (SMEs) and their corporate clients across the MENA region connecting them to regional hubs in Africa, Asia, and European markets. Tawreeq’s solutions offer a holistic approach toward SCF and are made available through state-of-the-art SCF technology platforms swiftly connecting suppliers, buyers and investors.