• 18 May 2022
  • sme financing | invoice financing | purchase order financing

Invoice Financing for Supply Chains | SME Insights

The COVID-19 pandemic has made a profound impact on supply chains in many industries across the world. Increased border controls and customs regulations meant longer wait times between suppliers and buyers. At the same time, lockdowns have caused factory closures with deep hits to manufacturing firms and other industries that rely on these manufacturers, and companies struggled to fulfil the surge in demand for products. 

As the end of the pandemic begins to take shape, many enterprises are looking to achieve a healthier supply chain. For forward-thinking businesses looking to build resilience in their supply chains and operations while minimising the financial impact of disruptions, supply chain financing should be an important part of a multi-pronged supply chain strategy. 

The pressure on suppliers’ working capital caused by the Covid-19 pandemic has been a significant concern to the business community. SMEs tend to be the first to feel the effects of financial crises in particular due to the double pressure of falling sales and extended payment delays. Supply chain financing can be a useful tool to plug the financing gap by advancing cash – closing the loop between procurement and accounts receivable. 

What Is Supply Chain Financing?

Supply chain financing is a form of supplier finance in which suppliers can receive early payment on their invoices or financing to fulfil purchase orders. This form of finance reduces the risk of supply chain disruption and enables both buyers and suppliers to optimise their working capital. Some sellers also provide buyer finance programs for their dealers and distributors, where buyers can take advantage of accounts payable financing to enjoy longer payment terms – a corporate “Buy Now, Pay Later” program. 

Supply chain financing is usually done through a financial intermediary such as Validus who will first pay the supplier and then collect back payment from the buyer down the line. In this way, the supplier can receive early payment for a smooth flow of materials to the buyer, while the buyer enjoys favourable 60 to 150-day payment terms. 

This supply chain financing option is gaining more traction, especially fuelled by the current economic climate where payment is often extended, to unlock liquidity in the supply chain. Through supply chain financing, corporations are able to support the sustainable growth of SMEs in their supply chain ecosystem.

How Can Supply Chain Financing Help SMEs Build Resiliency?

In today’s uncertain economic and geopolitical environment, supply chain financing can make it easier for suppliers to weather through tumultuous periods.  Here are three ways that suppliers can make use of supply chain financing to reduce disruptions: 

1) Boost working capital to tackle rising costs

Supply chain financing ensures that businesses have the financial flexibility to survive through increased supply chain costs and sustained disruption. Apart from “stop-start” changes in COVID-19 safety protocols, costs such as wages and raw materials have skyrocketed for many industries. This increased cost pressure combined with fluctuating demand for goods means that working capital can often be strained – resulting in disruptions. Because the cost of funding is usually lower for suppliers than other funding sources, supply chain finance can be an effective way for businesses to obtain working capital so that they can deal with rising costs. By unlocking cash from unpaid invoices, suppliers can access another source of credit in addition to their traditional financing source.  

2) Prepare inventories for worst-case scenarios

Many businesses have learnt from the pandemic that building up inventory reserves is crucial for ensuring that supply shocks do not disrupt production. While this strategy will enhance supply chain resilience, it can also be highly capital intensive. Supply chain financing ensures that SMEs have the liquidity to stock up on inventory. As a result, they will have the appropriate quantities of an item, in the right place, at the right time – regardless of any volatility upstream. 

3) Improve cash forecasting accuracy

When suppliers access supply chain finance, they can gain more certainty over the timing of incoming payments. This makes it easier for them to forecast their future cash flows accurately.

Cash flow forecasting helps SME owners to understand their current cash position while making it easier for them to analyse upcoming income and expenses while avoiding crippling cash shortages. In these troubling economic times, cash is king and planning for future cash flows means that businesses will be able to pay for operational needs such as their labour force, and any growth opportunities to come. 

How SMEs Are Benefitting From Smart Supply Chain Financing Solutions Offered By Validus

While SMEs can turn to traditional sources of financing such as banks and financial institutions, Validus is a pioneer and leader when it comes to alternative financing solutions like invoice financing and purchase order financing. Through Validus’ partnerships with government-linked companies and leading corporations such as SembcorpST Engineering, SMRT, Keppel, Siemens, Guthrie Engineering, Surbana Jurong, YTL PowerSeraya and more, vendors, suppliers or contractors of these corporate partners can receive fast, pre-approved and collateral-free financing to boost cash flow sustainably at preferential interest rates. 

Check out our smart financing options made affordable and possible in under 24 hours or request for a callback from one of our relationship managers. 


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