Supply Chain Finance Agreement

Supply Chain Finance (SCF) is an essential chapter in supply chain management. It connects buyers and sellers to financial institutions. This helps companies reduce financing costs and improve efficiency. The most important thing is that it frees up the tied working capital in the supply chain. Supply Chain Finance is a segment of commercial finance. 5.) There is a desire to ensure capital stability as supply chains expand. Another Asian financial crisis (such as the 1997 one) would seriously disrupt the supply chains of U.S. buyers by not capitalizing their suppliers. But it lacks a decisive role in this equation, and it is the “translator” for supply chain financing – the company that, based on the experience of logistics/transportation and financial services. The translator is the expert, if you will, who can bring all the entities to the table – transport and logistics; Banks; The buyer and sellers and speak different languages and understand the needs of each party. In addition to participating in the financial transaction, the translator can help bridge the information gap between the physical and financial worlds and provide a critical analysis of the information collected in the supply chain.

With the extension of the supply chain due to globalization and offshore production, many companies have seen their capital availability decrease. In addition, pressure from companies to improve cash flows has put increased pressure on their foreign suppliers. In particular, suppliers are under pressure in the form of extended payment conditions or increased working capital imposed by large consumers. The general trend towards opening subscription accounts continued to contribute to the problem. The financial institution acts as an intermediary; First, he on board and conducted due diligence on the counter-parties. After the Knowledge-Your Client procedure, it evaluates the merits of the seller and his debtors. In addition, the duration of the business relationship and solvency are also analyzed. Thus, the company calculates a commission based on the fictitious amount and the days financed. The more time the buyer needs to pay, the higher the fees. The still rare method of reverse factoring resembles factoring in that it involves three players: the customer, the supplier and the postman. Like basic factoring, the objective of the process is to finance the supplier`s claims by a financier (the postman) so that the supplier can immediately cash in the money for what he has sold (less an interest than the factor deducted to finance the advance of the money) [citation required].

While buyers have traditionally focused on the rise of their 20 or 50 largest suppliers, technology-based solutions now allow companies to offer financing to hundreds of thousands or even tens of thousands of suppliers. This is possible through the provision of user-friendly platforms and optimized supplier boarding processes that facilitate the boarding of a large number of suppliers quickly and with minimal effort. Although the supply chain has seen strong demand growth, financial institutions are focusing primarily on the large buyer side of the business equation. Since structured financing has traditionally been developed and made available to large international commercial enterprises by banks, it does not use common foundations. For supply chain financing to accelerate on a large scale, it is necessary to give new impetus. A “tipping point” could easily be reached by responding to the following challenges. Unlike other debt financing techniques such as factoring, supply chain financing is set up by the buyer and not by the supplier. Another important difference is that suppliers have access in the supply chain to financing costs based on the buyer`s creditworthiness and not on their own.