Often known as reverse factoring, Supply Chain Finance (SCF) allows buyers in the UK to pay their suppliers more promptly, without impacting on cashflow. It is a finance facility usually initiated by the buyer.
How does it work?
1. A funder sets up a Supply Chain Finance Agreement with the buyer based on his credit history.
2. The buyer receives a delivery from their supplier along with the appropriate invoice.
3. The buyer then confirms the invoice and logs it on to the IT system with the funder.
4. The supplier has access to the IT System and once the invoice is confirmed and logged they can request immediate payment for an early settlement discount. The supplier can also choose to wait for the agreed payment date, in which case he needs do nothing.
5. The funder will pay the supplier direct on the due date (if not before).
6. The buyer will then pay the funder on the due date of the invoice (the goods are likely to have been on-sold by the buyer at this stage).
The SCF facility is given according to the financial strength of the buyer – which means that the suppliers do not get credit checked by the funder.
So, if you are a supplier and finding that your buyer is extending payment terms, you could suggest this as a way of getting your payment more quickly. Or alternatively. if you are a buyer who wants to help your suppliers without giving yourself a cashflow problem, then please give us a call. We can help find you the best deal for your business and for your suppliers.