Let’s begin by understanding that the “supply chain” is the process by which a Supplier sells and delivers goods/services to a Buyer, under a negotiated price and payment terms, then invoices that Buyer for such goods/services delivered, and is thereafter paid by that Buyer based upon that documented invoice and according to the timing dictated under the terms.
Supply Chain Finance (SCF) is a process that is injected into the supply chain process (outlined above) that helps the Supplier be paid for his invoice sooner than the payment terms established with the Buyer. Specifically, the Supplier invoice may not be due and payable by the Buyer until 90 days from the invoicing, but, with SCF, the Supplier may receive his payment on day 10, or day 30, or on any day he chooses before the 90th day.
Before SCF, in order to best manage cash flow, Suppliers had to go to financial institutions and ask for a cash flow loan during the period that they were “waiting” for payment of the accounts receivables (outstanding invoices). Another method used is called “factoring”, in which the Supplier actually sells an invoice to a third party or bank for a discounted payment of the total invoice amount, and the bank would then intercept payment from the Buyer on the term date. Either of these methods carried the burden of an expensive cost for the Supplier.
Supply Chain Finance provides early payment of the invoice to the Supplier using different financial transaction methods than either factoring or short term debt. SCF trades can take several forms, but they are:
- Markedly less expensive to the Supplier,
- Do not require individual documents and obligations be originated and exchanged for each trade,
- Do not add debt to the Supplier, and
- Are normalized under set program terms that allow the Supplier to control the degree to which they wish to employ any volume of SCF trades at specified rate cost, on demand.
PrimeRevenue OpenSCi™ also provides some unique values to the power of SCF:
- Multiple banks/funders participate globally providing even greater liquidity than any single bank,
- The Supplier is not limited to the terms and credit policies of any single bank; with multiple funders there are alternative liquidity providers,
- Each party (Buyer, Supplier, Bank/Funder) has secure and ongoing visibility into approved and executed transactions from anywhere in the world,
- Buyers can view all of their approved invoices for trade by all or any of its participating Suppliers,
- Suppliers can view all of their approved invoices with any participating Buyer and control the degree to which they employ SCF, from automatic trading down to any single invoice,
- With comprehensive legal preparation and supporting multiple languages and currencies, OpenSCi breaks down the barriers of international supply chain finance like no other SCF solution or program!