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Published : August 3, 2023, Updated : October 20, 2023

The Future of Supply Chain Financing

The Future of Supply Chain Financing

As businesses from all over the world navigate the changing landscape of global trade, the future of Supply Chain Financing automatically pops up as a topic of interest and innovation for many who are concerned and connected.

Once a simple financial technique, it has now undergone a noticeable transformation, driven by advancements in technologies, changing market trends, and sustainable practices.

In this blog, we will delve deeper into the future of supply chain finance.

What Is Supply Chain Finance?

Supply Chain Finance is an umbrella term that describes the entire set of technology-based financial solutions aimed at lowering financial costs and boosting fast cash flow in the business for both buyers and sellers involved in the transaction. This methodology works by making the transaction automated and tracking the approval of the invoice right from the beginning to the final stage. In this approach, purchasers agree to authorize their suppliers’ invoices for financing through an external entity, commonly known as “factors” or financiers.

Supply chain finance facilitates working capital in the business by providing short-term credit, which is favorable to both parties.

When suppliers get the amount due from the buyer from a third party, even the buyer gets extra time to settle the payment. Be it any side of the equation, it’s almost a win-win situation for all. Both parties can put the cash to better use, aiming for growth and success.

Evolution in Supply Chain Finance Over The Years

“According to the World Supply Chain Finance Report 2022, supply chain finance fund volumes showed a significant increase in 2021 over 2020 as the global volume rose by 38% to $1.8bn and funds in use by 41% to $713bn.”

Supply chain finance has evolved from simply depending upon financial leverage to support trading partners to a more comprehensive approach. Modern supply chains benefit from increased liquidity, technological advancements, and large companies directly providing liquidity leverage to suppliers, expanding the range of finance options available.

The Popularity of Supply Chain Finance

Supply chain finance has gained popularity among buyers and suppliers due to several compelling reasons:

1. Enhanced Payment Flexibility

Supply chain finance allows buyers to extend their payment terms, offering greater flexibility in managing their finances. This enables businesses to make more purchases with favorable terms and access additional credit.

2. Lower Interest Rates for Suppliers

By utilizing the supply chain financing model facilitated by the buyer’s better credit rating, suppliers benefit from lower interest rates than they would typically receive.

3. Strengthened Buyer-Supplier Relationship

Supply chain finance fosters a mutually committed relationship between both parties, as they rely on each other for success. This shared investment ensures continued collaboration and support.

4. Reduced Funding Costs for Suppliers

Through supply chain financing, suppliers experience lower financial costs compared to traditional credit assessment methods.

5. Improved Inventory Management

Supply chain finance empowers buyers to optimize their inventory and invest in high-quality raw materials. Additionally, it facilitates innovative solutions for predicting demand patterns in various industries.

Overall, supply chain finance proves advantageous for both buyers and suppliers, offering a range of benefits that contribute to smoother financial operations and stronger business relationships.

New Innovations In Supply Chain

Here are some of the top trends and innovations that you might see dominating the supply chain arena for the best.

1. Fusion of Technology and Human Power

When human power like critical thinking, emotional balance, client relations, and logical implementation combine with the technology of data analysis and artificial effectiveness, it takes the entire supply chain method to new heights of quickness and efficiency.

2. Automated Risk Management

Technologies like AI and MI (Artificial learning and Machine Learning) help assess credit risk. It helps eliminate threats by predicting real-time threats.

3. Tech-Enabled Supplier Network

Leveraging technology for an extensive supplier network in supply chain finance provides multiple benefits like reduced documentation, instant financing, and added value services. Buyers gain supplier options, negotiation power, and attractive discounts, while robust technology platforms streamline communication and fund transfers.

4. Electronic Format

With the help of data analytics, technology automates the exchange of information, documents, and payments between buyers, suppliers, and financial institutions. This improves the visibility of the entire supply chain finance process for everyone involved.

Embracing the Future: Supply Chain Finance’s Global Impact

Supply chain finance has become a robust force in the global marketplace. It has contributed to around half of global trade revenue. As entities look for enhanced efficiencies in the global economy, innovation in the supply chain finance arena is on the rise.

Pioneering Digitization

In our technology-driven era, digital solutions are empowering MSMEs to reduce financing costs and boost the operational effectiveness of buyers and sellers in sales transactions.

Expanding the Financial Landscape

The integration of multiple players enriches the financial pool, granting suppliers access to a diverse range of financing options and better working capital support.

Overcoming The Challenges in Supply Chain

Overcoming challenges in supply chain financing post Covid-19 requires innovative solutions:

Embrace digitalization

Leverage advanced platforms to expand financing options, enabling seamless communication and fund transfers between buyers, suppliers, and financial institutions.

Utilize Blockchain Technology

Implement smart contracts on the blockchain to streamline the financing process, providing a transparent and immutable transaction record for secure fund transfers.

Collaborate With Experts

Partner with trusted fintech brands like Credlix, who utilize data-driven risk algorithms to offer real-time risk assessments and efficient credit access for MSMEs from various lending partners, ensuring a mutually beneficial outcome for all stakeholders.

To Conclude

Supply chain finance is an efficient financial tool that helps businesses manage their cash flow. It enables timely payments of bills without stressing over how to meet the expenses. It also allows a greater deal of cash flexibility by readily making capital available when needed. At Credlix, we make the entire process seamless and profitable for our valued customers.

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