By Theron Theunissen, Head of Supply Chain Finance, TreasuryONE
Supply chain finance is a well-known financial instrument that is used worldwide. It is a top-rated solution for corporates of all sizes for the simple fact that it does what it is supposed to, without too much hassle or fuss. Supply chain finance is described as a non-debt creating financing instrument for the simple fact that your suppliers sell their receivables to the bank in order to get paid on an earlier date, and it works as follows:
- Your suppliers submit their invoices to your company as per the standard business processes.
- These invoices follow the usual channels to get reconciled, reviewed and approved for payment.
- After final approval has been granted, the invoices are integrated with the cloud-based supply chain finance system via an SFTP link with your ERP.
- As soon as the upload has been completed, the relevant Suppliers are notified about the invoices which have become available for early settlement. These Suppliers then log into the system and select the various invoices they want to receive early payment for.
- The bank will pay these suppliers for same-day value if the abovementioned process is completed before 1 p.m.
- The Buyer then hangs on to the cash for the invoices submitted to the supply chain finance program until the actual due date of the invoices, granting them the ability to apply those funds for any other working capital purposes until such a time as they need to settle the bank.
Another beautiful aspect of this product is that it is zero-cost based. There is no sign-up cost, admin fees or bank charges billed back to your company or any of your suppliers. The implementation of the system and user training is an easy process causing no business interruptions.
The benefits of this product can be summarised as follows:
- Payment Terms: Buyers have the option of extending payment terms with their suppliers to free up cash by holding on to it longer, thus ensuring a cost-effective manner in which they can “fund” their business.
- Alternative Solution: Using the form of cost-effective funding mentioned in point a. gives the buyer comfort in knowing they have created a solution that will not impact current or possible further lending facilities.
- Relationships: Proceed to build positive relationships with your suppliers by offering an option for financial support at a practical cost, regardless of extending your payment terms.
- Tailor-made technology: A Supply Chain Finance platform offering integration with your ERP built to spec to automate the integration of invoices approved through normal business processes, thereby streamlining your solution.
- Improved Margins: Facilitate settlement discounts based on your credit profile with the possibility of a buyer rebate included in the final rate, resulting in an increased margin without compromising your cash flow.
- Localised System Support: The availability of unceasing training and support with the commitment to resolving system related issues within one business day.
- Structured Payments: Standardisation of the monthly payment schedule for all creditors, allowing those Suppliers requesting early payment to do so by joining the SCF program without impacting the Buyer’s monthly payment schedule.
- Enterprise and Supplier Development: Enhance your company’s B-BBEE status by supporting black-owned companies’ development and economic stability by offering a channel for early settlement of invoices at cost-effective rates, thereby improving their cash flow. This is a critical element in a B-BBEE Scorecard.
- Bolstered Liquidity: Early settlement of invoices will provide suppliers with improved cash flow, which will function as an inexpensive form of working capital finance.
- Enhanced Functionality: Suppliers choose whether to have their approved invoices settled on an automatic basis, thereby allowing them a certain level of assuredness of cash flows on a month-to-month basis. Alternatively, they can choose to select their invoices manually for early settlement when they require them.
- Report Generation: The platform provides a comprehensive report generating capability to ensure that suppliers have visibility of the last steps in their SCF, from invoicing through to payment.
- Admin Light Process: TreasuryONE will officiate all suppliers’ onboarding with dedicated support personnel to make the administrative process as efficient and streamlined as possible.
- Credit Light and Rewarding: Suppliers using the program do not fill up their credit lines with unnecessary borrowings while simultaneously not paying high discounting costs to factoring companies to receive their funds early.
- Localised System Support: The availability of unceasing training and support with the commitment of resolving system related issues within one business day.
Every organisation and supplier base is unique. As a result, your supply chain finance program, as well as its goals, requirements, and underlying principles for program execution, will be unique. Complex finance systems, various payment terms for various suppliers, and many other headaches that finance face necessitate not only a flexible supply chain finance provider, but also a program that is similarly flexible and scalable to their individual requirements. That is what a Supply Chain Finance program is able to provide.