The big benefits of supply chain finance

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We recently wrote about the issue of late payments. But it’s not all doom and gloom. In fact, the rise of supply chain finance offers suppliers a neat solution to the critical problem of getting paid on time – and offers buyers a chance to improve their cash flow, too.

No wonder then that adoption is skyrocketing, with tonnes of providers launching to target specific market niches. But how does supply chain finance work? And how can you make it work for your business?

What is supply chain finance?

Supply chain finance – otherwise known as “reverse factoring” – has exploded in popularity in recent years, as businesses have recognised the positive impact it can have on cash flow and relationships across the supply chain.

It performs something akin to a magic trick, enabling businesses to lengthen their payment terms to suppliers, whilst helping suppliers to get paid early. Supply chain finance comes in many different forms, but perhaps the simplest variation is when a supplier sells eligible invoices at a small discount to a finance provider, who is then paid by the ultimate buyer of the goods or services covered by the invoice.

Who benefits?

Everyone benefits from supply chain finance:

  • The supplier gets paid early by a creditworthy counterparty
  • The buyer of the goods or services enjoys the benefit of extended timelines for payment
  • The finance provider makes a margin between the price it paid for the invoice from the supplier and the price it will receive from the company upon settlement

For suppliers and buyers, this is a great way to improve liquidity management. But it’s not as easy to achieve as it sounds. To make supply chain finance work for your business, you need to look under the hood of your finance system to ensure that you have the correct document processing infrastructure in place. Without it, frankly, it won’t work.

Speed is everything

What is the key to successful supply chain management? Speed, the quicker you can get an invoice authorised and ready to be paid, the better for all parties. Unfortunately, this is a formidable challenge for many businesses, who take an age to process documents.

CloudTrade[1] slashes the time it takes to get invoices authorised:

Application-generated documents are validated and data is extracted. It can also be augmented and enriched if necessary, before being ingested into the finance system and used in other areas of the business, facilitating greater visibility and control.

The invoice is posted to the target system, ready to be paid – without being so much as touched by the buyer.

Typically, invoices arriving into Accounts Payable take between 10 and 30 days to be authorised for payment. With CloudTrade it takes less than 24 hours.


Download our Free E-invoicing Guide to High Supplier Adoption


Cash is king

On a practical level, the speed and accuracy of this process means that buyers have much more negotiating power when it comes to paying invoices.

If an invoice due for payment within 60 days can be authorised for payment within 1 day of being received, that leaves 59 days to play with. To press home this advantage, a notification can go out to the supplier informing them that the invoice is ready to be paid – and the buyer can ask for a healthy discount for early payment.

This is a great example of how increasing the velocity of document processing can create new opportunities for your business. CloudTrade’s unique Intelligent Data Capture[2] technology enables organisations to exploit supply chain finance to get more visibility and control over cash flow.

Give back to your business

In recent years, the focus amongst UK companies large and small has shifted away from cost reduction towards cash management and compliance. Companies are already pretty efficient, and there isn’t much wood left to chop in order to improve profitability. Rather than saving hours by cutting headcount, our clients and prospects tend to be focused on giving hours back to the business.

Supply chain management is the perfect way to achieve this. CloudTrade’s technology creates opportunities to improve the way companies manage cash flow, whilst keeping suppliers happy and countering the late payment epidemic.

The value of this is not to be underestimated. No man is an island, and no business exists in a vacuum. By investing in faster document processing, you’re investing in your relationships across the supply chain. And in the long run, there’s no better way to grow a business.

CloudTrade helps you and your suppliers save time and money. Book a discovery call now.