Why optimise your supply chain financing and how to get your smallest supplier on an extended payment term via Spot Buy Center

What is supply chain financing?

Supply chain finance is a set of solutions that optimises cash flow by allowing buyers to extend supplier payment terms. Via Spot Buy Center you could extend the payment terms of thousands of suppliers with the click of your finger. Even the local bakery where you purchased a sandwich.

An improved working capital is key. It drives the cash you need to run your business.

Explanation of abbreviations:

• Days Inventory Held (DIH) = Inventory/(Cost of Sales/365)
• Days Sales Outstanding (DSO) = Receivables/(Sales/365)
• Days Payable Outstanding (DPO) = Payables/(Cost of Sales/365)
• Cash Conversion Period (CCP) = DSO + DIH - DPO
• CCP measures the time between inventories and cash from sales

How does this work via Spot Buy Center?

As a buyer, you extend payment terms with Spot Buy Center, (eg., from 60 to 120 days) causing a dramatic slowdown in cash outflows.

Through our financing solutions, we bring solutions to offset this negative impact on suppliers of being paid later.

Our solutions give us the option of getting paid early by selling our invoices to our financial partner. This offsets the negative impact of longer payment terms, while still enabling you to meet your cash flow optimisation objectives. 

Supplier

Invoice recorded as A/R on balance sheet until settlement received but has option to sell invoice before due date to Spot Buy Center’s financial partner (in exchange for financial discount)

Corporate user

Invoice recorded as A/P on balance sheet until payment to Spot Buy Center’s financial partner (at original due date)

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What are the key benefits?

Supplier:

• Access to an attractive, off-balance sheet financing (if non-recourse) option based on buyer’s credit rating
• Manage working capital and free cash flow in a flexible way: option to accelerate collection (DSO) and access to instant liquidity
• Reduce credit risk when opting for early payment, allowing reduction/cancellation of trade credit insurance, thus lowering cost of goods sold
• Improve visibility on incoming cash flows: inflows are initiated by supplier
• Strengthen relationship with trade partners

Corporate user:

• Reduce working capital needs and increase free cash flow for tail spend through extended payment terms (DPO)
• Strengthen relationship with trade partners
• Reduce operational impact for tail spend through one single supplier (e.g., one monthly invoice, one payment term, one supplier)
  

Summary:

Why supply chain financing? (SCF)

1. Working capital is the cash you need to run your business: it finances the gap between the payment to your supplier and the money you collect from your customer.
2. By extending payment terms you reduce working capital.
3. Suppliers, however, are keen to collect asap.
4. SCF bridges the gap between later payment by the buyer and earlier collection of cash by seller.
5. SCF makes it possible to finance cheaper than traditional corporate financing, being based on self-liquidating assets and complementary to those other sources.

Additional benefit though Spot Buy Center:

1. Traditional SCF is commonly applied for specific sourcing types. 
2. However, the solution offered by SBC to manage tail spend allows the application of SCF techniques to tail spend given the simplification and efficiency gains it brings to the buyer: reduced number of invoices and one single extended payment for all your tail-spend suppliers.

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WIN-WIN

Buying organisations can extend their payment terms, and suppliers can get paid earlier. It’s a true win-win solution for both trading partners. 

This working capital can be used by both buyers and suppliers to fund new innovation or competitive initiatives. It can be used to weather economic or industry volatility, and protect or grow margins. Money that has traditionally been tied up in accounts payable/receivable can now be used to generate income and gain strategic advantage in the market. 

Supply chain finance also strengthens supplier health and relationships. Not only does it minimise or negate the impact of extended payment terms, suppliers can also receive near-immediate payment for invoices at an interest rate often many times lower than other financing approaches. This increase in cash flow can protect suppliers who are often more vulnerable to market dynamics. 

Via Spot Buy Center you could gain working capital and put all your c-suppliers and beyond on an extended payment term (>90 days net) without any effort!