At first blush, the idea of using your company’s accounts payable ledger to generate cash flow is a little “left field”.
Traditionally, the Accounts Payable function has always been about cost management not revenue and savings, but that has changed with the emergence of what is generically referred to as supply chain finance.
Choosing the right supply chain finance will not only help to overcome the challenge of managing working capital it will help your business to grow by adding thousands of dollars to your bottom line.
What is supply chain finance?
To put it simply, a financier gives you funds so you can offer your suppliers early payment terms in exchange for discounts.
The benefits include:
- Increased revenue.
The discounts you earn will go straight to your bottom line.
- Improved cash flow.
Because the financier is providing the funds to pay your suppliers, you get to preserve working capital to generate growth or to plug holes that emerge in your day to day operations. You can even extend your payment terms if necessary.
- A stronger and more reliable supply chain.
By offering early payment as an option, you’ll have suppliers lining up to do business with you. The huge number of companies already using debtor finance supports that.
- No fees.
The right supply chain finance company shouldn’t charge you fees for the facility, but will take a share of the discounts offered by suppliers.
Why would you use supply chain finance?
Australian businesses take a long time to pay their bills. The bigger the company, the longer that payments seem to take.
Many companies have extended payment terms to sixty days from the end of the month in which an invoice was issued.
You can wait up to three months for the cash to appear in your bank account making life extremely difficult.
Businesses which suffer the most are those trapped between slow paying customers on one side and, on the other, valued suppliers who demand timely payment.
Your working capital can be drained in weeks leaving you with a major headache. Supply chain finance offers the antidote.
Access to a flow of interest free funds alleviates the stress and enables a cash flow challenged business to optimize its working capital.
Supply chain finance, or reverse factoring as it is also known, offers a solution to the working capital needs of both buying organisations and suppliers.
It’s an indisputable win-win result.