The Benefits: Using SCF to Pay Later, Boost Vendor Relations and More

Introduction:

In today's fast-paced business landscape, efficient operational and financial management of the supply chain is crucial for companies seeking to gain a competitive edge. Supply Chain Finance (SCF) is a powerful financial tool that offers numerous benefits for both buyers and suppliers. Previous blog posts described how SCF became a best practice among Fortune 500 companies (as ‘buyers’),how Quartix allows middle-market companies to become SCF buyers too and covered the SCF process step by step. This blog post explores the secret sauce of SCF and highlights its advantages, including improved cash flow, enhanced vendor relations, and uninterrupted supply chain continuity.

The SCF Secret Sauce:

SCF allows eligible vendors to collect outstanding invoices immediately upon approval without the buyer (you) paying a day too early. Instead, 3rd-party cash (such as Quartix’s) is used to fund vendor early payments. Importantly, the decision to collect early lies with the vendors, ensuring autonomy.

SCF Benefits for Buyers:

As a buyer, embracing SCF unlocks several advantages without paying vendors too early.

a. Increase Days Payable Outstanding (DPO): SCF empowers negotiations for favorable payment terms with vendors. By offering quick access to cash, SCF reduces resistance when extending payment terms (e.g., turning Net30 to Net60 or Net90). Strategically managing DPO accelerates cash conversion cycles, unlocking working capital for growth initiatives, optimizing business areas, and reducing debt and interest expenses.

b. Protect Existing DPO Levels: In cases where vendors request shortened payment terms, SCF serves as a solution. Buyers can invite vendors to join the SCF program, enabling them to receive payments as desired, without compromising formal payment terms.

c. Improve Vendor Relations: SCF strengthens relationships by offering vendors early payment options, reducing their reliance on costly external financing. This fosters trust, collaboration, and builds a resilient supply chain network.

d. Boost Supply Chain Continuity: Timely cash flow is crucial for suppliers to meet demands and sustain operations. SCF ensures access to working capital, minimizing disruptions, reducing vendor turnover, and promoting uninterrupted production cycles. This enhances supply chain reliability.

SCF Complements Existing Vendor-Finance Solutions:

While purchasing cards, dynamic discounting, and 2/10/net30 terms cover smaller vendors, SCF complements these solutions. SCF uses third-party funds to pay vendors early, enabling quick onboarding of high-spend, larger vendors. SCF's flexibility and affordability make it an attractive option, especially for vendors unwilling to offer large, permanent discounts.

Summary:

Supply Chain Finance (SCF) optimizes cash flow and strengthens relationships within supply chains. Buyers benefit from improved working capital management, enhanced vendor relations, boosted supply chain continuity, and increased negotiation power. SCF complements existing vendor-finance solutions by covering high-spend, large vendors. Embracing SCF unlocks significant advantages, driving sustainable growth in the complex business environment of today.

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