Streamlining Supply Chain Finance: Benefits of Funding Innovation

Financing supply chains can be complex and expensive, simply due to the supply chain length.

Neil Cassule
May 9, 2024

Financing supply chains can be complex and expensive, simply due to the supply chain length. Bottlenecks and late payments cause serious financial difficulties for the businesses involved and potential delivery delays or less than satisfactory outcomes for consumers.

Securing supply chain funding could also be a laborious process historically, conducted manually rather than digitally. Technology has now streamlined this type of finance, however, enabling a transformation that brings substantial benefits to supply chain members.

Innovative funding solutions for supply chains

Supply chain finance aims to ease the flow of cash along the supply chain so that transactions are smooth and each member is paid quickly and efficiently. This can be achieved using innovative funding solutions, including supply chain finance platforms and invoice finance products.

A supply chain finance platform provides an integrated online space where suppliers, buyers, and funders interconnect. Lenders rely on the financial strength of the buyer in this situation and this reduces their risk, which is a significant benefit to smaller supplier businesses that may not enjoy a good credit rating.

Conversely, invoice finance, which can fall under the umbrella of supply chain finance, is based on a relationship between the supplier and the lender and the buyer is not directly involved in the funding arrangement.

How do businesses benefit from innovations in supply chain finance?

Lowered transaction costs

Lower costs are a significant advantage for businesses, especially if profit margins are already tight. Transactions can be completed smoothly and quickly using automation, helping supply chain members stay competitive in the market.  

Additionally, smaller members of the supply chain benefit from these funding innovations as supply chain finance can be used with more than one buyer, being based on the larger company’s credit rating.

Better cash flow management

Cash flow worries ease when payments are made efficiently throughout the supply chain. Resilience is also built into the supply chain as a whole with a reduced likelihood of bottlenecks and late payments.

It’s able tofunction fluidly as working capital that was previously locked into customer invoices is freed up to use on projects in the pipeline, also helpingbusinesses to plan and grow.

Transparency incollaboration

The transparency offered by collaborating on a shared digital platform strengthens trading relationships and encourages longer-term partnerships. Buyers can benefit from extended payment terms, without jeopardising their supplier’s cash position.

The ‘timestamp’ provided by blockchain technology means that transparency is maintained throughout a transaction with all parties to the funding being able to see the stage it’s at and take the necessary actions.

Reduced supply chain disruption

The disruption that can easily plague complex supply chains is considerably reduced by using innovative technologies. Fast payments down the chain of businesses bring greater efficiencies that also benefit the consumer or end-user.

Disruption is difficult to address when there’s no transparency or cohesion within the supply chain. Lack of trust can also make it difficult for members to operate efficiently, but finance innovations reduce the likelihood of unethical behaviour taking place, or potential fraud.

Streamlined and transparent supply chain funding

The finance industry’s digital transformation has streamlined supply chain funding and enabled businesses of all sizes to collaborate within a transparent, efficient,and secure system.

The ability to operate with less likelihood of late payment and the inevitable limitations that brings is transformational for smaller suppliers. Innovative funding solutions offer many benefits that positively affect a business’s short-term cash flow as well as its longer-term strategic plans.

About the author - David Tattersall is Head of Client Relations at HandpickedAccountants. With over 35years’ experience in professional services, David has particular expertise infinance, accountancy and corporate insolvency 

FundOnion's resident expert on lenders & their products.