Finance

Supply chain financing

Supply chain financing, also known as “reverse factoring,” frees up working capital for the buyer and the seller while mitigating accounts receivable risk. Supply chain finance involves a supplier, buyer and separate financial institution. The buyer uses its creditworthiness to grant the supplier lower financing costs on working capital, ultimately extending the days payable outstanding.

The process works like this:

  1. Supplier provides product to buyer
  2. Supplier sends invoice to buyer
  3. Buyer approves invoice
  4. Accounts receivable transferred from supplier to bank
  5. Supplier receives immediate payment less fees or interest
  6. Buyer pays invoice total

Additional benefits of supply chain financing include improved transparency and stronger supply chain relationships.

Example

ING: Suppy chain financing

Situation

  • Supply chains typically depend on credit lines and open accounts for working capital.
  • Many supply chain order processing systems are internally-focused and vary between companies.
  • Supply chain players conventionally operate as distinct entities with transactional relationships between them.

Challenges

  • Poor understanding of supply chain finance concept.
  • Poor transparency into the movement of goods and account status.
  • Understanding the cost of capital in supply chains.
  • Insufficient automation in invoice-payment process.

Solution

  • ING created its Supply Chain Finance Platform to connect value chains and reduce their collective costs.
  • Companies can process accounts receivable/payable through the platform quickly, conveniently and transparently.

Key Benefits

  • Improvements in working capital and free cash flows.
  • Transparency of accounts receivable/payable.
  • Quicker access to liquidity for supplier.
  • Reductions in client credit risk.
  • Stronger supply chain relationships.