Supply Chain Finance

With MyNeofintech, you can access corporate supply chain finance (SCF) programs, a set of technology-based business and financial processes that link the various parties in a transaction (buyer, seller and financial institution) to reduce financing costs and improve business efficiency. Supply chain finance provides short-term credit that optimizes working capital for both buyer and seller.

Supply chain finance uses business solutions that optimize working capital and provide liquidity to companies. Under SCF, suppliers sell their invoices or receivables at a discount to banks or other financial service providers, often called factors. In return, suppliers gain faster access to money owed to them, allowing them to use it for working capital, while buyers generally get more time to pay. Instead of relying on the creditworthiness of the supplier, the bank deals with the buyer.

For example, the buyer will try to delay payment as long as possible, while the seller seeks to be paid as soon as possible. Supply chain finance works especially well when the buyer has a better credit rating than the seller and therefore can access capital at a lower cost.

The buyer can use this advantage to negotiate better terms from the seller, such as an extension of the payment terms, which allows him to keep the cash or use it for other purposes. The seller benefits by accessing cheaper capital, while having the option to sell its receivables to receive immediate payment.

A typical extended accounts payable transaction works as follows: Suppose Company X buys goods from Supplier Y. Y supplies them and submits an invoice to X, which X approves for payment on standard 30-day credit terms. If supplier Y requires payment before the 30-day credit period, the supplier may request immediate payment (at a discount) of the approved invoice from company X's financial institution. The financial institution will remit the amount billed (less an early payment discount) to provider Y.

In view of the relationship between company X and its financial institution, the latter may extend the payment period for another 30 days. In this way, Company X has obtained credit terms for 60 days, instead of the 30 days provided by supplier Y, while Y has received payment more quickly and at a lower cost than if it had used a traditional factoring agency.

SCF generally involves the use of a technology platform to automate transactions and track the invoice approval and settlement process from start to finish.