Supply Chain Financing can also be known as Supplier Financing or Reverse Factoring. The term “supply chain” in this context is used to refer to a “Large Buyer” company that is being supplied by numerous smaller “Supplier” businesses. “Supply Chain Financing” refers to the opportunity provided to the supplier businesses, under one umbrella arrangement that has been initially set up by the “Large Buyer” at the top of the supply chain.
An example of how a business may use our Canadian supply chain financing company would be where a supermarket chain is purchasing products from a wide range of smaller suppliers. The supermarket will arrange an agreement with an independent finance company or financial institution such that all of their suppliers have the option of accessing finance under the umbrella arrangement. This is often provided at rates that more reflect the size and credit strength of the supermarkets business rather than the size of the individual supplier businesses. The suppliers benefit from the arrangement since they are usually able to access financing at rates lower than they would typically be able to achieve on their own.
Our Express-Pay Program
Some arrangements may be as simple as funding the outstanding invoices in what amounts to a quick pay program, but in some cases there may be other services added onto the arrangement that may help to improve the overall management of the entire supply process. Express Business Funding provides additional benefits to its supply chain finance clients that typically cost extra at most supply chain financing companies in Canada. Our many years of experience and vast number of clients in Toronto, Ontario – Vancouver, BC – Calgary, Alberta, and throughout all of Canada, gives us the unique ability to provide our clients with industry specialized financing services. See our case studies for details or give us a call.
Arrangements For Supply Chain Financing
Currently, most examples of this type of arrangement are programs that have been established by major multi-national companies partnering with large financial institutions (banks). The bank carves out a portion of the customer’s approved credit facility and sets up a “Payables Financing” program in order to secure discounts from the suppliers in return for quicker payment. These programs work when two situations hold true:
The “Large Buyer” has significant credit strength and borrowing power and can carve out this portion of their facility without any negative affect on their day-to-day cash flow.
The discounts being secured are greater than the cost of borrowing and implementation of the program
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How Can You Benefit?
Because most examples of these types of arrangements are programs that have been established by very large companies partnering with their financial institutions, Supply Chain Finance appears to have taken off relatively slowly. However, there are examples of new arrangements emerging and the product is likely to be featured increasingly within the invoice factoring market. The area where the program is most likely to grow is in the mid-market – medium size “Buyers” with a modest size supply chain that would like to manage their treasury in ways similar to companies many times their size. Using a Toronto supply chain finance company in Ontario, these Buyers would have a group of suppliers that would consistently offer early payment discounts in return for quicker settlement of invoices, but the Buyers are growing at such a rate that access to the capital required to fund this opportunity just isn’t there.
Introduce a smaller financier (invoice factoring company or asset-based lender) to facilitate the process. The Buyer can now make firm-date commitments to the financier on blocks of payables (thus maintaining or in some cases extending existing payment terms), and the financier can offer the suppliers the opportunity to receive “quick-pay” at a discount.