How does it work?
The process starts after the supplier sends an invoice to the buyer. The buyer approves the financing of the invoice and sends it back to the supplier.
Discount invoices can be issued for short term funding they provide to large companies. The supplier can then effectively sell the invoice to financiers at an attractive price.
You can get more information about supply chain risk management from various online sources.
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It also means that the risk is transferred from the supplier to the financier. For example, by financing an invoice, the supplier can receive payment on the fifth day, which is initially 60 days, and the buyer can hold the payment until the end of 60 days.
Why use supply chain finance?
Supply chain finance provides an affordable financial solution that simplifies the payment process. There is security of supply, cutting accounts, and greater reliability in financing bills.
A stronger and more financially sustainable supply chain leads to a long and fruitful trade relationship with the supplier.
What's the difference?
Invoice cutting and factoring look at the supply chain from a buyer's perspective and use debt as collateral, whereas supply chain financing covers the supply chain.
The funds are only used for supplier repayments as a form of liquidity. In addition, the lender has an overall safe position, which is supported by credit insurance in the event of dishonesty of the debt.