Supply Chain Finance | 2023 Supply Chain Finance (SCF) Guide

An introduction to Supply Chain Finance (SCF) / Payables Finance

Trade Finance Global / Supply Chain Finance | 2023 Supply Chain Finance (SCF) Guide

Supply Chain Finance | 2023 Supply Chain Finance (SCF) Guide

Welcome to the TFG Supply Chain Finance (SCF) and Payables Finance hub. Find out about how we help corporates and large businesses access supply chain finance programmes, or keep up to date with the latest research, information and insights on supply chain finance.

What is Supply Chain Finance?

Supply Chain Finance (also known as SCF, payables, reverse factoring and supplier finance), is a cash flow solution which helps businesses free up working capital trapped in global supply chains. Supply Chain Finance has recently been defined as a much broader category of trade financing, encompassing all the financing opportunities across a supply chain. Notwithstanding, the product is still very much seen from a narrower perspective, where its key feature is that it is buyer/debtor driven. In such a case, a buyer approaches its financial provider for the establishment of a receivables discounting line for its suppliers to use and discount the invoices they issued to that buyer.

It is a solution designed to benefit both suppliers and buyers; suppliers get paid early and buyers can extend their payment terms. This solution allows businesses which import goods to unlock working capital as well as reduce the risk associated with buying goods in bulk and/or transporting them globally. SCF is generally defined as ‘an arrangement whereby a buyer agrees to approve his suppliers’ invoices for financing by a bank or other financier’.

The term Supply Chain Finance (SCF) is often also referred to as

Given that there are no ICC rules for SCF (like there are for Letter of Credit or Incoterms), it’s often up to each provider to decide what they call it.

Despite the publishing of the ‘Standard Definitions for Techniques of Supply Chain Finance‘ by the International Chamber of Commerce in 2016, the definition is not yet widely adopted and providers of SCF often use various terms to describe their product offerings.

Receivables finance on the other hand, is well defined as ‘the purchasing of receivables or invoices from a seller, with or without recourse’.

In order to address some of the common issues and misunderstandings around SCF, we have put together this short guide.

Diagram: How does Supply Chain Finance work?

payables finance diagram

How can Supply Chain Finance benefit my business?

SCF is a very efficient way to underpin the stability of a Buyer’s supply chain and market reach vis-a-vis its suppliers, allowing it to benefit from better credit terms and streamlined invoice payment procedures (supply chain finance tends to be made available through online platforms). It is also very beneficial to suppliers, as it allows them to shorten their receivables cycle and therefore reinvest their operational cash-flow at a faster pace. The advantages also tend to include financing in better terms for both parties, as suppliers don’t need to take out financing under their own credit lines and may benefit from their clients’ access to credit at lower rates, and buyers may get credit from their suppliers at a lower cost than that of taking out a loan.

Benefits to buyers/ importers

  • Buyers can maintain a healthy balance sheet
  • Buyers maintain a good relationship with suppliers
  • Promotes competition/ diversity in suppliers
  • Allows buyers to make purchases in bulk to save costs
  • Buyers can work with complex end-to-end supply chains
  • SCF doesn’t disturb existing bank relationships or overdrafts

Benefits to suppliers/ exporters

  • Suppliers can get paid earlier than their usual 30-day credit terms
  • Little financial risk – insurance is sorted through a supply chain financier
  • Doesn’t cost the supplier any extra
  • Allows supplier to have the cashflow to work on numerous deals simultaneously
  • Helps provide liquidity and reduces financing costs

How can we help?

The TFG supply chain finance team works with the key decision-makers at 270+ banks, funds and alternative lenders globally, assisting companies in accessing trade & supply chain finance.

Our international team are here to help you scale up to take advantage of trade opportunities. We have product specialists, from machinery experts to soybean gurus.

Often the financing solution that is required can be complicated, and our job is to help you find the appropriate trade finance solutions for your business.

Read more about Trade Finance Global and our global team.

 

Get started – talk to our team

Contact Information

If you have a supply chain finance enquiry, please use the contact form.

Otherwise, you can reach us on the email addresses below.

Trade Finance Global
201 Haverstock Hill
Second Floor
London
NW3 4QG

Telephone: +44 (0) 2071181027

Supply Chain Finance Enquiries



Want to learn more about Supply Chain Finance?

Look no further. We’ve put together our feature trade finance insights, research and articles, and you can catch the latest thought leadership from the TFG, listen to podcasts and digest the latest in international trade right here.

From the Editor – Supply Chain and Payables Finance Insights

India: A potential winner in the China supply chain crisis There is no question that the turbulent global economy and the unending impact of the COVID-19 pandemic have wreaked havoc on China’s supply chain. 

The country’s economy is taking a hit with factories being forced to shut down, resulting in a significant disruption in international commerce.

To agriculture and beyond: a look at how IoT technology is transcending industry silos 2022 was a year filled with ups and downs for trade technology companies, but there are many bright spots for 2023.
Think data, not documents: advancing MLETR in 2023 VIDEO | Think data, not documents: advancing MLETR in 2023 To learn more about UNCITRAL and the efforts to support the regulatory environment around digital trade, Trade Finance Global (TFG) spoke with Luca Castellani.

Videos – Supply Chain Finance

Supply Chain Finance Podcasts




Supply Chain Finance – Frequently Asked Questions

Who can use Supply Chain Finance?

Currently, supply chain finance programmes exist predominantly in Western European and US markets, but Asian markets are quickly following suite, particularly India and China. Chief Financial Officers are beginning to include supply chain finance as part of their working capital and treasury agendas. Despite being around for over 70 years, supply chain finance is now being transformed by digital innovation. Proprietary software and technology platforms work with banks to automate and provide instant rates and terms which suit both parties. Payables data will typically get uploaded to a supplier platform and suppliers can immediately approve invoices and see invoices before they mature.

Supply chain finance is great for large corporations or SME suppliers/ buyers. Whether you’re looking to import automotives and vehicles or retail stock such as clothing, supply chain finance is an innovative solution which the UK government fully supports and encourages.

How can Trade Finance Global help your business access supply chain finance?

At Trade Finance Global, we are experts in providing insight on global supply chain and trade finance. In addition, we have a network of expert funders and advisors who have helped SMEs and businesses access finance to import and export goods or services worldwide. We work with you to find out what your business requires.

Our specialists work with leading funders and banks to offer you the most competitive rates; simply get in touch using the contact form below, and briefly let us know what you’re looking for. Alternatively, find out more about supply chain finance by reading some of the articles we have put together above.

How does Supply Chain Finance work?
  1. A Supply Chain Finance facility is entered by the buyer, financier and supplier
  2. Goods are shipped and sales invoice is raised on the buyer by the supplier
  3. Supplier submits invoice to financier’s supply chain finance platform
  4. Buyer approves the invoice on the financier’s supply chain finance platform
  5. The financier pays the supplier, excluding interest and fees.
  6. The financier debits the account of the buyer on the maturity of the invoice

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About the Author

Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies. Prior to joining TFG (tradefinanceglobal.com), Mark qualified as a lawyer with a top ranked global trade and structured commodity finance team.

Mark has previously advised commodity trading firms, banks and alternative capital providers on international structured trade financings, pre-export, prepayment and limited recourse structures – notably in the oil, soft commodities and metals sectors. This has included mining finance projects, structured letter of credit facilities, receivables discounting and forfaiting agreements.

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