How to Improve Supply Chain Finance

Supply chain finance is an important process that provides financing to suppliers for accounts receivable (AR). Financing and payment options are negotiated and mutually beneficial for both business buyers and suppliers. This type of financing not only impacts the finance department but also procurement, sales, shipping and other departments as part of a holistic financial and cash management program.

The Case for Supply Chain Finance: For Buyers

Benefits for buyers participating in supply chain finance include:

  • Longer Payment Terms: Buyers can secure longer payment terms and improve their Days Payable Outstanding (DPO). With longer payment terms, companies can also enhance their working capital and cash flow levels.
  • Greater Discount Capture: Many suppliers offer discounts for paying invoices early, usually a 2 percent discount for paying invoices within 10 days. Capturing discounts is an important priority among 85 percent of account payable professionals according to a recent study by Direct Insite and PayStream Advisors. These discounts add up quickly and can account for an annual percentage rate of return of 36 percent, much greater than the anticipated rate of return offered in today’s money market accounts or by paying off debt.
  • Better Supplier Relationships: Buyers can improve supplier relationships by paying invoices in a timely manner. This can result in more favorable terms and improved support in the future. Suppliers also benefit from financing, which further solidifies relationships.

The Case for Supply Chain Finance: For Sellers

Financing helps supplier organizations in the following ways:

  • Access to Capital: It’s challenging to obtain access to funding or capital, especially for small to mid-sized supplier organizations. Financing enables suppliers to receive cash for AR before the end of the invoice due date. This improves working capital management and cash flow. It also frees up resources to take advantage of timely investment opportunities or fulfill immediate cash requirements.
  • Mitigates Risk: Suppliers don’t need to worry about the risk of a trading partner defaulting and not being able to pay its invoices.
  • More Predictable Payments: Suppliers enjoy more predictable timing of payments to improve their cash flow management programs. Greater certainty about when a supplier will be paid for invoices is especially important to small and mid-sized suppliers. This is a win-win scenario for both buyers and sellers of commercial goods. Unfortunately, many companies struggle to implement this strategy into their financial supply chain mostly due to the overreliance on manual, paper-based invoice processes that plague AP and AR departments.

Improving Supply Chain Finance

Companies can improve supply chain finance by automating accounts payable (AP) and AR process with an ePayments and electronic invoicing solution like Direct Insite’s PAYBOX® platform. Most AP departments rely on manual data entry for invoices and paper-based workflow solutions. This is inefficient and costly.

Electronic invoicing facilitates supply chain financing and dramatically reduces the invoice processing cycle from 23 days down to just five. This enables companies to capture more discounts, lower labor costs and increase security and compliance.

Direct Insite’s PAYBOX® solution is an all-in-one solution that transforms AP and AR processes to help organizations improve financial stability and bottom line revenue growth. For more information about Direct Insite’s PAYBOX® platform and how it can benefit your organization, give us a call at (613) 873-2909 and receive a personal consultation.

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