Supply chain finance (SCF) – as part of supply chain management (SCM) – is a highly promising tool in view of this growing complexity. We explain why supply chain finance is ideal for medium-sized as well as large companies and how SCF can be managed effectively.
Supply chain finance – managing your cash flows effectively
Working capital management is important to every company. But especially in an international environment where global and regional economic developments have an impact. This is making the management of the financial aspects of the supply chain and their optimization increasingly complex with regard to capital costs.
Modern financing solution to optimize liquidity
Supply chain financing links financial and physical flows in the supply chain as part of supply chain management. The aim is to optimize capital and process costs and cash flow. The potential of SCF lies in the integration and use of various financing opportunities in the supply chain of suppliers, customers, logistics service providers and banks.
Relevant services include established solutions, such as factoring, as well as new approaches like dynamic discounting and reverse factoring. Offering a wide range of solutions, SCF provides many opportunities for improving company cash flow as well as inter-company cash flows.
The advantages of SCF
Using SCF has two major advantages. Firstly, in times of negative interest rates, companies can move their capital holdings short-term and turn them into yield-bearing balances through direct investment or supply chain finance solutions, for example. By pre-financing supplier invoices (e.g. reverse factoring), debtors can use their credit standing to benefit from reductions and other discounts. SCF solutions have a beneficial effect on the capital structure and debt-equity ratio as they are not traditional debt financing solutions, such as loans or current accounts.
On the other hand, suppliers are increasingly affected by the optimization of working capital. Companies often use their position of power and transfer the risk and, in turn, the costs of financing to suppliers. For example, payment deadlines are increasingly being pushed to the limit. SCF plays an intermediary role here, reconciling various aspects and interests.
Factoring: huge potential but (still) low level of acceptance
Factoring is not a new concept. Yet it is still not very widely used in Switzerland. According to a The link will open in a new window study carried out by the Supply Chain Finance Lab at the University of St. Gallen, just 3% of Swiss companies use factoring or plan to in the next few years. The reasons indicated by companies for the low level of acceptance are primarily the high financial costs as well as the potential negative impact on customer relationships, such as through the outsourcing of payment collection and dunning processes.
This reveals the untapped potential of this SCF solution as factoring is based on the credit standing of companies’ customers or debtors. This means the financing costs can be much lower than with traditional debt financing solutions such as current accounts or loans.
PostFinance provides solutions for its business customers with factoring, reverse factoring and dynamic discounting (flexible discounts) to optimize The link will open in a new window WCM. These solutions also provide potential for creating win-win situations right across the value chain. Relationships with suppliers or customers, for example, can be improved (preferred buyer, preferred supplier) with prompt payment or the provision of financial support for business partners by making full use of the best credit standing.