Supply chain finance (SCF) is a form of finance in which suppliers can receive payment on their invoices in advance. Supply chain finance enables both buyers and suppliers to optimize their working capital. It reduces the risk of supply chain disruption. It’s also known as reverse factoring.
Unlike other finance techniques, the buyer sets up supply chain finance instead of the supplier. Based on the buyer’s credit rating suppliers can access supply chain finance. As a result, supply chain finance typically entitles suppliers to receive it at a lower charge.
Supply chain finance increases business efficiency for buyers and sellers associated with a sales business. More time is given to buyers to pay off their balances, while suppliers gain quicker access to the money owed to them. The participants can utilize the cash on hand for other projects to keep their respective operations rolling smoothly.
How does Supply Chain Finance (SCF) Work?
Supply chain finance operates properly when the buyer has a more reliable credit rating than the seller. The buyer should source capital from a bank at a lower cost. This advantage permits buyers to negotiate more beneficial terms from the seller like extended payment calendars. Meanwhile, the seller can discharge its products fast, to receive quick payment from the intermediary funding body.
The following steps show the Supply Chain Finance (SCF) process:
Step 1 – Buyer purchases goods or services from the supplier.
Step 2 – Apply with business information such as accounts, and bank statements.
Step 2 – The supplier issues their invoice to the buyer, with payment expected within a certain number of days.
Step 3 –Buyer approves the invoice for payment
Step 4- Supplier requests early settlement on the invoice
Step 5 – The system establishes suppliers to facilitate payments to them.
Step 6 – Funder sends payment to the supplier, with a small fee deducted
Step 7 –The supplier sends you their invoice as usual.
Step 5 –The system sets up suppliers so that payments can be made to them.
Step 6 – Buyer pays the funder on the invoice due date
Once a supply chain finance program is up and running, suppliers can request early payment on their invoices.
What documents are required for Supply Chain Finance (SCF)?
Once you have evaluated your supply chain finance requirement, you can prepare the following documents.
· Identity Proof/Address proof for the owner as well as business
· Recent Bank statements
· Recent VAT /GST documents
· Invoices for the last 3 months
· Sales ledger details for vendor.
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