What is supply chain finance?

Supply chain finance, also known as supplier finance, is a financial solution that supports both buyers and suppliers by optimising cash flow within the supply chain.

The solution allows suppliers to receive early payment on their invoices from a third-party financial institution while enabling buyers to hold on to their cash longer via extended payment terms.

Leveraging technology to link buyers, suppliers and financial institutions, supply chain finance enables faster, more transparent transactions. By using supply chain finance, businesses can improve supply chain management and minimise financial risk.

When cash flow is smoother, business operations can thrive – that’s where supply chain finance comes into play. This financial strategy not only eases financial pressure but can also build stronger, more resilient relationships, empowering both buyers and suppliers to better manage financial risks. Matthew Board, Founder and Managing Director of broker.com.au, outlines some of the benefits. 

• Improve cash flow: Supply chain finance allows businesses to unlock liquidity sooner, giving them the flexibility to extend payment terms without affecting supplier payments or disrupting cash flow. “It benefits both suppliers and buyers,” adds Matthew. “Buyers can maintain longer payment terms, which aids their cash flow, while suppliers receive cash upfront.”
• Stronger supplier relationships: “It can also strengthen buyer-supplier relationships,” he says. “With prompt payments, suppliers avoid the frustration of delayed funds, fostering a healthier business relationship.”
• Risk mitigation: By balancing cash flow needs for both suppliers and buyers, supply chain finance offers a layer of financial stability, helping to reduce risk and keep operations running smoothly. For suppliers, one advantage is earlier access to funds rather than waiting up to the agreed payment terms. It also reduces the risk of late payments since the lender covers most, if not all, of the payment upfront.”

So, when is supply chain finance a good option? Take, for example, these scenarios:

• Businesses with long cash conversion cycles: Companies with extended payment terms often benefit from the way supply chain finance works by keeping operations steady despite delayed incoming payments.
• Working with international suppliers: The strategy can be useful for businesses with international buyers, where longer payment cycles are common. It can also improve trade relationships and reduce risks associated with importing and exporting goods. 

Matthew recalls one local manufacturing business he worked with that produced carbon fibre wheels for high-end car brands, including Ferrari and Porsche. 

“As an original equipment manufacturer for major car companies, you can imagine that the payment terms are at least 120 days. In addition, the bulk of this particular business’s clients were based overseas. Because they were foreign-based buyers, trying to find a financial solution was quite difficult.” 

This is where supply chain finance can bridge the cash flow gap effectively.

Supply chain finance is also beneficial for service-orientated businesses with big blue-chip buyers or clients that delay payment, Matthew adds. 

He reflects on one case where a labour-hire company had several major banks as clients and faced payment delays. “In situations where staff must be paid fortnightly or weekly, but payment takes months to come through, supply chain finance provides the essential support needed.” 

Navigating cash flow challenges and maintaining strong supplier relationships is crucial to business success. Octet’s intelligent supply chain finance solution is designed to support exactly that, giving you the ability to fund business growth and invest in supply chain innovation. Our offering allows businesses to extend payment terms while ensuring their suppliers are paid instantly. 

Octet’s supply chain finance and other working capital solutions are tailored to address specific cash flow challenges and growth opportunities. We offer a full range of products to ensure your business’ diverse needs are met, including:

• Trade Finance: Provides a flexible line of credit to power international and domestic trade transactions keeping cash flow steady, allowing businesses to secure inventory and services without straining cash reserves.
• Debtor Finance: Turns unpaid invoices into immediate cash, ensuring steady cash flow for companies with extended credit terms.
• Term Loan: Provides flexible funding for expansions or major asset purchases with predictable repayments for financial stability.