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Supply Chain Finance: How it Works and Why Does it Matters for Your Working Capital Optimization

Supply chain finance matters for working capital optimization because it provides a solution for companies to manage their cash flow by optimizing the payment terms of their suppliers. By providing early payment options to suppliers in exchange for a discount on their invoices, companies can improve their cash conversion cycle and reduce their working capital needs.


Supply chain finance is a financial solution that allows companies to optimize their working capital by providing early payment to suppliers. It works by using financing tools to provide early payment to suppliers, which can help to improve their cash flow and reduce their dependence on expensive short-term financing.


Here's how it works and why it matters for your working capital optimization:

Financing tools:

Supply chain finance can be provided through different financing tools such as reverse factoring, dynamic discounting, and receivables purchase. These tools offer different benefits and are suited to different supply chain scenarios.


Early payment:

Supply chain finance provides early payment to suppliers by allowing them to sell their outstanding invoices to a third-party financial institution, which then pays them an amount close to the full value of the invoice. The financial institution collects the full amount from the buyer when the invoice is due, which can be up to 120 days after the invoice date.


Improving cash flow:

By providing early payment to suppliers, supply chain finance can help to improve their cash flow and reduce their dependence on expensive short-term financing. This can also help to reduce the amount of working capital tied up in accounts payable.


Strengthening relationships:

Supply chain finance can help to strengthen relationships between buyers and suppliers by providing early payment and reducing the risk of default. This can lead to greater collaboration and innovation throughout the supply chain.


Reducing risk:

Supply chain finance can help to reduce the risk of supplier default by providing early payment and ensuring that suppliers have the necessary cash flow to fulfill their obligations. This can help to reduce the risk of disruptions in the supply chain and improve the reliability of the supply chain.


Optimizing working capital:

By improving cash flow and reducing the amount of working capital tied up in accounts payable, supply chain finance can help companies optimize their working capital and free up cash for other purposes.


In summary, supply chain finance is an essential solution to help companies optimize their working capital and improve their supply chain operations. Providing early payment to suppliers can help to improve cash flow, strengthen relationships, reduce risk, and optimize working capital.


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Financing

Empowering Business Growth

Access to working capital in an affordable and efficient manner is essential for business.

We recognize the need for customized solutions as each business has differing requirements.

SupplySci provides accounts payable and accounts receivable funding programs to meet your evolving liquidity requirements combined with our product procurement program.

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