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Summary of supply chain finance solutions
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Summary of supply chain finance solutions
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Supply Chain Finance SolutionsSamenvatting ‘Chapter 6 Supply Chain Finance’
Supply chain finance definition
“Optimized planning, managing and controlling of supply chain cash flows”, facilitated by
adequate information sharing protocols, “to facilitate efficient supply chain material flows”
Or
Supply chain finance should help optimize the performance of the supply chain as a whole,
by influencing operational decisions and risk management.
Different supply chain finance solutions
1. Advanced payment
2. Delivery of products
A buyer finances the supplier by advancing payment at a discount prior to product
shipment; this is also known as “cash in advance”. The unit discount offered by the supplier
incentivizes the buyer to make an advance payment, which can be used to fulfill the
supplier’s working capital needs. The advance payment can also alleviate the supplier’s
budget constraint and thereby mitigate the buyer’s risk of procurement shortage.
1. Purchase order
2. Financing
3. Delivery of products
4. Payment
, suppliers receive funding, prior to product delivery, from a financial institution based on a
buyer’s (discounted) purchase order; the bank thus finances the costs of production. The
supplier theoretically lends from the bank, but because they then deliver the products to
the buyer, the buyer directly pays the bank. The supplier’s financing rate depends on the
buyer’s creditworthiness; this setup is called buyer-backed purchase order financing. This
variant allows an SME supplier to contract for a larger order quantity given the external
funding provided—thanks to the buyer’s credit rating—by a bank.
1. Delivery of products
2. Warehouse receipt
3. Financing
A financial institution loans funds to a supplier based on a warehouse receipt that certifies—
as portable collateral—the secured storage of product in a specified quantity and quality.
Een supplier brengt zijn producten dus naar een warehouse en als dit warehouse aan de
bank doorgeeft dat ze de producten goed hebben ontvangen (de warehouse receipt), dan
financieert de bank de supplier. De warehouse is dus puur een nieuwe partij die de
producten opslaat.
1. Delivery of products
2. Delayed payment
Agreement in which a buyer can purchase goods without paying cash up front, and paying
the supplier at a later scheduled date. many suppliers use discounts when trade credits are
involved to encourage early payments. A supplier may give a discount if a customer pays
within a certain number of days before the due date.
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