Supply Chain Finance: Optimizing Working Capital for Your Business

What is Supply Chain Finance?

At its core, supply chain finance is an arrangement where a company partners with a financial institution to pay suppliers on the company’s behalf. Here’s how it typically works:

1. A business purchases goods or services from a supplier
2. The supplier submits an invoice to the business
3. The business approves the invoice for payment
4. A financial institution pays the supplier early, minus a small fee
5. The business repays the financial institution at a later agreed-upon date

The key benefit is that suppliers can get paid quickly, often within days, while the purchasing company gets extended payment terms. This improves cash flow for both parties.

Why Supply Chain Finance is Growing in Popularity

Several factors are driving increased adoption of supply chain finance programs:

• Economic uncertainty is putting pressure on working capital
• Shifts to nearshoring are increasing inventory costs
• Companies across industries are focusing more on cash conversion cycles
• Fintech platforms are making programs more accessible to mid-size companies
• Supply chain disruptions have highlighted the need to support key suppliers

While early adopters were primarily large retailers and automakers, we’re now seeing interest from manufacturers, consumer goods companies, electronics firms, and others. The strategy is no longer limited to Fortune 500 companies.

Key Benefits of Supply Chain Finance

For Buyers:

• Extend payment terms to improve working capital
• Strengthen relationships with strategic suppliers
• Reduce supply chain risk
• Improve EBITDA and other financial metrics

For Suppliers:

• Get paid faster to improve cash flow
• Reduce borrowing costs by leveraging buyer’s credit rating
• Minimize collection efforts
• Strengthen relationship with key customers

Is Supply Chain Finance Right for Your Business?

To determine if a supply chain finance program might benefit your company, consider the following questions:

1. Do you have suppliers requesting faster payment terms?
2. Are any key suppliers experiencing financial distress?
3. Could your suppliers benefit from your stronger credit rating?
4. Are your suppliers based in regions with limited access to capital?
5. Do you have flexibility to extend payment terms with suppliers?
6. Is improving working capital a priority for your business?

If you answered yes to several of these questions, supply chain finance may be worth exploring further. The next step is to calculate your cash conversion cycle and assess how adjusting payment terms could impact your working capital metrics.

How FreightAmigo Supports Supply Chain Finance

As a Digital Logistics Platform, FreightAmigo is well-positioned to facilitate supply chain finance programs for our clients. Our Digital Logistics Solution connects buyers, suppliers, and financial institutions on a single platform. This allows for seamless integration of logistics, payment, and financing workflows.

Some key ways we support supply chain finance include:

• Providing visibility into shipment status and documentation to support early payment programs
• Offering flexible payment terms on freight costs to improve working capital
• Connecting clients with financing partners in our ecosystem
• Automating invoice processing and approvals to accelerate payment cycles
• Analyzing supply chain data to identify financing opportunities

Our goal is to help clients optimize both physical and financial supply chains. By leveraging our Digital Platform, companies can implement supply chain finance programs more quickly and effectively.

Conclusion

In today’s uncertain business environment, supply chain finance offers an appealing way for companies to improve working capital while supporting suppliers. As the strategy gains adoption beyond just the largest corporations, businesses of all sizes should evaluate whether it could benefit their operations. With the right technology platform and financing partners, supply chain finance can be a win-win for buyers and suppliers alike.

To learn more about how FreightAmigo’s Digital Logistics Platform can support your supply chain finance initiatives, contact our team today. We’d be happy to discuss solutions tailored to your business needs.