What is Supply Chain Finance and Trade Finance?
- December 20, 2023
- Posted by: Paul Ransley
- Category: Blog
What is the difference between supply chain finance and trade finance?
While they are both designed to support your cash flow by ensuring your domestic and international clients are paid in a timely fashion there are some important differences.
Supply chain finance (SCF) allows you to offer early payment to suppliers in exchange for discounts which reduces your costs. The facility is underpinned by trade insurance which means that, in most instances, no property security is required. However, director guarantees would be taken.
Supply chain finance also requires that you fund a deposit for the goods you are buying, however if you don’t have available cash, the funds for this can be raised using our trade finance (TF).
Trade finance is not supported by trade insurance so company directors must offer some collateral, but trade finance can be used to pay deposits and pre-shipment costs.
How supply chain & trade finance work?
In both instances, we give you an off-balance sheet revolving credit line which you can draw on when it comes time to pay suppliers.
Who gets paid and when is entirely up to you. You send us the invoice, approve the payment and we release the funds.
After the agreed period of time, you top up the line of credit with funds which are available to use again.
What’s the best use for supply chain & trade finance?
Both facilities are best used to access working capital when you have a project to complete or to obtain goods for which you already have a sale.
For example, your furniture company takes an order to provide furniture for a new hotel development. You use the credit line to pay your overseas supplier. When your customer pays your invoice you use the money to top up the credit line which is available to fund your next order.
How do I qualify for supply chain & trade finance?
Your business should have a proven track record of activity in your industry.
The company should be in a sound financial position with a good credit report and taxes up to date or, at least, a payment plan in place.
Your suppliers should be established companies with a strong track record.
How quickly can I receive funding?
Once we have received your application and supporting documents we can be set up and ready to roll within a week.
How much will it cost?
You only pay for the funds you use.
In general, you will pay a small daily rate for drawn funds.
If you are using supply chain finance, you can offset that cost by obtaining a discount from your supplier in return for early payment of their invoice – though this is not mandatory.
Do we need to change banks or existing financing arrangements?
Not from our point of view. Our credit line is off-balance sheet and should not interfere with existing arrangements you have in place.
What security do I have to provide?
Supply chain finance is supported by credit insurance. Depending on the size of your business and its trading history we may require a charge over the company assets and accept director guarantees.
Trade finance will be supported by real estate or company assets as well as signed guarantees.
Can you pay overseas suppliers?
Yes. Both supply chain and trade finance enable you to pay international manufacturers and suppliers.
Trade finance will fund deposits and pre-shipment costs.
Do all my suppliers have to enrol to receive early payment?
No, but there are huge benefits to suppliers from receiving timely or early payment of invoices, so we would encourage as many as possible to sign onto our platform.
This is also important from your point of view because the more suppliers you have the lower your costs will be.
How are these facilities managed?
Your facility is managed through our state of the art online platform .
You can upload invoices, determine when they should be paid and to who.
Your supplier may also have access to the platform to request early payments.
The platform allows you to determine and manage your costs and track all transactions with clear and concise reporting which can be integrated into your existing accounting system.