Everything About Supply Chain Finance in Singapore For SME

Introduction: Supply Chain Finance

The COVID-19 pandemic has disrupted the supply chain for many industries, causing delays in both supplier and buyer transactions, factory shutdowns, and difficulties meeting increased product demand.

As the COVID-19 pandemic begins to subside, many businesses are looking for ways to strengthen and improve their supply chain operations. One potential solution is incorporating supply chain financing, which can provide advance cash to bridge any financing gaps and ultimately complete the buying and paying cycle. This strategy can help businesses maintain resilience and minimise financial disruptions in the future.

After reviewing the definition and benefits of supply chain financing, it’s clear that this financial tool can benefit both buyers and suppliers in today’s complex global marketplace. This type of financing differs from traditional business term loans in that it focuses on improving cash flow throughout the supply chain rather than just providing funds for one specific company. In Singapore, SME suppliers and buyers can take advantage of this option to improve their financial efficiency and competitiveness.

Supply chain Finance: What is it?

In supply chain financing, suppliers can receive early payment for invoices or financing for purchase orders. This not only reduces the risk of supply chain failure but also maximises working capital for both buyers and sellers. Buyer finance programmes also allow dealers and distributors to extend their payment terms through accounts payable financing. Overall, this type of financing offers a “buy now, pay later” option for corporations.

In supply chain financing, a financial middleman often plays a crucial role by paying the supplier upfront and then collecting payment from the buyer. This allows for quicker material delivery for the buyer and quicker payment for the seller, ultimately benefiting both parties involved.

Supplier side financing

In supply chain financing, suppliers are able to receive early payment for their invoices from financial institutions instead of waiting for the buyer to pay according to their long payment terms. This allows suppliers to have access to increased liquidity and optimise their working capital. The process involves the supplier sending copies of their invoices to the financing provider, who then pays them on behalf of the buyer before the due date. The buyer ultimately pays the invoice amount to the financing provider on the designated due date.

In some cases, a buyer may opt to use financing in order to extend their credit terms without impacting the cash flow of their supplier. This allows the buyer to arrange for the financing partner to pay the supplier upfront and then repay them later. Overall, this can provide added financial flexibility for the buyer while still maintaining a positive relationship with the supplier.

Also Read: Which Is the Better Option? Invoice Discounting or Factoring

Buyer side financing

In buyer financing, the payment terms are extended by the financing provider, allowing for increased working capital. Suppliers can receive early payment and continue supplying the buyer. The process involves the supplier shipping goods and invoicing the buyer, who then requests payment from their financing provider. The financing provider then fully pays the supplier. Eventually, the buyer is responsible for paying back the financing provider on the due date.

In supply chain financing, companies offer early payment to their suppliers in exchange for a fee. This option is becoming increasingly popular as extended payment terms put a strain on small and medium-sized businesses cash flow. This financing option can help SMEs grow and thrive by providing liquidity to the supply chain. It is important to note that this option differs from a traditional business term loan.

What distinguishes supply chain financing from a term loan for a business?

In supply chain financing, a facility or line is used, repaid, and used again to fund supply chain sales. This differs from business term loans, which are typically used for general business purposes such as expansion or daily operations. Supply chain financing can provide increased funding for small and medium-sized businesses as their sales grow. Overall, it offers shorter terms and one-time payments compared to traditional business term loans.

How Can Supply Chain Funding Support SMEs’ Resilience Building?

Supply chain financing can provide stability for small and medium-sized businesses during uncertain times. This type of financing can help suppliers weather economic downturns or political instability. Here are three ways that supply chain financing can benefit SMEs:

  1. Gaining access to additional funding
  2. Improving cash flow management; and
  3. Possibly improving supplier relationships
  4. Ultimately, supply chain financing can be a valuable tool for SMEs to navigate uncertain times and grow their business.

In the event of a supply shock, having reserves of inventory can help businesses continue operations. Supply chain financing can provide smaller businesses with the funds necessary to build up these reserves. Overall, having inventory reserves can prevent disruptions in the supply chain.

The Bottom Line
The use of supply chain finance can help businesses manage increasing costs by providing access to working capital at a lower cost than traditional financing options. This can also benefit suppliers by allowing them to collect unpaid invoices for additional credit. By utilising supply chain financing, businesses can improve the accuracy of their cash flow forecasting. This allows them to better plan for income and expenses and avoids potential cash shortages. In an uncertain economy, supply chain financing can benefit both buyers and suppliers by providing steady liquidity. This win-win situation helps businesses thrive in the new normal.

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