Experts also define Supply Chain Finance as Supplier Finance or Reverse Factoring.
It is a set of solutions that optimize cash flow. It allows companies to extend their payment terms to their suppliers. It also offers the opportunity for their large and SME suppliers to get paid early. Supply chain finance is not a loan. It is an extension of the buyer’s accounts payable and does not count as financial debt.
Supply chain finance has surpassed conventional trade finance in market revenues.
Several factors, including more working capital, and the process of Digitalization, are responsible. Supply Chain Finance is also likely to grow due to the increase in new finance providers. Another factor is the growing demand in the global supply chain market.
The main advantage of Supply Chain Finance is that it allows SMEs to have working capital.
This state of affairs is possible even when they have sold their products and have not received cash. Here are a couple of more things you should know about the supply chain finance market.
Why Has Supply Chain Finance Grown in Recent Years?
The supply chain finance market has blossomed and eclipsed traditional trade finance. This change has been due to a couple of reasons:
Supply Chain Finance allows the selling of receivables. It also makes it possible for a third party to shoulder the risk of payment. It has opened up international trade. It allows more players to join the global trading market. It also enables the growth of multilateral trade arrangements in global supply chains. Another advantage is the growth of data management systems and IoT.
Trends in the Supply Chain Finance Market
The primary trend that has driven the growth of the supply chain market is the internet. New technologies have made it possible for the supply chain market to mitigate risks. New world-dominating businesses have allowed this market to increase profits.
Blockchain, Machine Learning, and AI have also revolutionized the global supply chain market.
The growth in some small and medium-sized companies (SME) is also a factor.
The banking sector has become a key player in the global supply chain finance market. The increased demand for payables has also become a significant trend. It drives the growth of the supply chain finance market. Emerging markets have also made companies look for solutions. They are seeking more cash and assets offered by supply chain finance markets.
Challenges Facing the Supply Chain Finance Market
The main challenges facing the global supply chain finance market are:
- Competition between New Financing Providers and Banks
- The interest rates of the suppliers
- Lack of enough inventory
- Different objectives for buyers and sellers
- Over-reliance on technological systems and Neural Networks.
The Most Common Supply Chain Finance Program
The banking sector is the most commonly used platform for supply chain finance. It handles approximately 46% of all supply chain finance operations, with domestic banks being the more frequent players in the market. They help in providing Inventory finance and Asset-based lending.
New finance providers have also become an emerging key player.
The Future of the Supply Chain Finance Market
Experts expect the market to grow. This growth is due to the impact of new emerging markets and new financing providers. The global market has also become transparent and more open to new and even smaller players.
Finally, Artificial Intelligence (AI) will impact the supply chain finance market. Other significant factors will be Machine Learning and Blockchain.
Supply Chain Finance allows a small supplier to access affordable financing. It also decreases the time taken to collect payment. Thus, it improves the company’s cash flow, which it can use for something else. It removes outstanding debts owed to a company from that company’s balance sheets. It also allows another party to assume payment risk on its behalf.