Trade Finance To Fund Your Supply Chain Activities
Supply Chain Finance is a growing field of specialist financial products and services for businesses looking to fund their supply chain activities. It can help inject cash into your supply chain and benefit from cost reduction opportunities such as reducing the cost of your capital. If you are not already actively addressing the cost of your supply chain activities, you could be missing out on significant competitive advantages.
Traditionally finance vehicles provided “factoring” or early settlement of invoices – usually about 85% of face value. Export trade finance offered (and still does) various means of financing global supply transactions and mitigating some of the risk associated with overseas trade through letters of credit.
The way supply chain finance is offered today is changing and becoming more flexible. Some banks are starting to provide their customers with forms of open accounts or draw-down as required. This can help your suppliers obtain early invoice settlement – usually 100% of cost through your line of credit. This enables you as a buyer to benefit from significant savings by leveraging your requirements and taking a more strategic approach to supply planning and commodity pricing. By using hedging techniques, you can forward buy your requirements on the basis of an advantageous currency rates.
Online payment and escrow facilities are contributing to new ways of injecting cash into your supply chain. There are a host of online payment enablers that can provide means to transact in real-time without the time delay involved with some traditional payment methods. Virtual currencies such as bitcoin offer another, albeit somewhat risky option to those looking for cost-effective and flexible ways to finance their supply chain activities.
If you are a small to medium (SME) sized business your supply chain finance review may unearth opportunities to negotiate supply chain finance with your key suppliers. Those suppliers that are big enough may have access to advantageous finance for their preferred buyers. And in case you’d overlooked this – there are strategic benefits in being able to inject cash into your supply chain. Finding ways to fund your strategic suppliers more efficiently can create new business opportunities for your company brand.