Supply chain finance unlocks the cash
Optimizing working capital and increasing cash flows remains a priority in companies – whether they are the buyer or the supplier in the supply chain. When it comes to the measures of obtaining these goals, it’s a lot harder to see eye to eye from the different ends of the supply chain.
“There is a lot of cash stuck in the supply chain, which can be unlocked in a way that improves on the operating capabilities and competitiveness of both parties. Supply Chain Finance is truly a win-win solution that benefits both the buyer and the supplier, and increases the stability of the whole supply chain,” describes Tapani Oksala, Solution Manager of Supply Chain Finance at OpusCapita.
OpusCapita did a survey earlier this year, which confirmed that Nordic companies consider negotiating longer payment terms with their suppliers as one of the main ways to optimize their working capital. Many perceive lengthening payment terms also as a question of their competitiveness in the international markets as their competitors from Central and Southern Europe have two or even three times longer payment times on their invoices.
“The flip side of this trend is obviously that it puts added strain on the liquidity of the suppliers, who already suffer from the lack of operating cash flow.”
A Supply Chain Finance (SCF) program set up by a large buyer organization levels the effects of the lengthening payment time by giving the suppliers quick access to affordable cash. In the financing program, suppliers can trade their approved invoices to a bank or other external funder. Financing is low cost, because it is based on the buyer’s credit rate. The buyer has a change to extend their DPO (Days Payables Outstanding) without jeopardizing the supplier relationships. For the suppliers it is a true sale of their receivables, so they can collect payments efficiently and keep up with good DSO (Days Sales Outstanding) performance.
“The availability of a SCF program can help the buyer’s procurement to succeed in the payment term negotiations with the suppliers. It’s an attractive option, as the price of the financing is considerably lower compared to other financing options, and the suppliers are left with the choice whether to make use of the financing or not on an invoice-by-invoice basis,” Tuomas Unhola, Business Director of Supply Chain Finance at OpusCapita states.
OpusCapita has partnered up with PrimeRevenue and offers a comprehensive Supply Chain Finance service solution leveraging PrimeRevenue’s proven trading platform. OpusCapita has already launched the first SCF program in Finland, and PrimeRevenue has experience in operating supplier financing programs for over 20 000 suppliers worldwide.
“Partnering with the global market leader in the field we can provide our customers with the best-in-class technology solution. We have further localized it to suit the needs of the Nordic companies with our expertise on global payment processing and the network of ready-build direct banking connections.”
For instance, OpusCapita has paid extra attention to developing the electronic supplier onboarding process, which makes it easy to introduce a great number of suppliers to the program. The OpusCapita SCF solution also supports multiple financing options. The program can also be self-funded by the buyer corporation as a Dynamic Discounting solution, without third-party financial institutions.
”A cash-rich corporation can accelerate their payments to their suppliers in exchange for a dynamic discount: the earlier they pay the invoice, the greater the discount. The buyer can use their excess cash to yield savings on purchasing prices and the suppliers gain benefits from the early payment,” Unhola says.
“Supply Chain Finance ends the tug-of-war over working capital,” says Professor Michiel Steeman. He shared with us his expert opinions on why supply chain finance solutions will become more common in the Nordic countries and in Central Europe in a few years. Read the article in OpusCapita Journal.
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