Global supply chains have more links than ever, and not all of those links are completely in sync when it comes to payments, cash flow and financing. And while the current economic climate is decidedly more amicable than it was during the Great Recession, that doesn’t necessarily mean buyers are cutting checks any faster (or that suppliers are getting paid any quicker). This reality creates bottlenecks in the supply chain, where even one insolvent or financially unhealthy supplier can interrupt its entire flow.
Enter supplier financing (aka supply chain financing), a concept that was popularized in the mid-2000s, when companies in nearly all industries were struggling to stay afloat. The concept is formally defined as a financing method that allows buyers to lengthen their payment terms to their suppliers while also giving those vendors the opportunity to receive payment earlier (that’s where the “financing” portion—typically provided by a bank or other financing company—comes into play). Through this process, the buyer is able to optimize its own working capital while the supplier generates more cash flow to support its own operations.