Supply chain is a network of organizations, people, activities,
information and resources involved in moving a product or service from suppliers
to customers. It involves the transformation of raw materials and components to
finished products that are eventually delivered to customers.
Supply chain finance refers to the financing processes that
link the different parties in a transaction (buyer, seller and financing
institution). Let’s say A buys goods from supplier B. B delivers the goods and
invoices A, with a 30-day payment term. If B requires early payment, B may
request immediate payment (at a discount) from A’s financing institution. The
financing institution will then remit invoiced amount (at a discount) to
supplier B. The buyer A may also request the financing institution to extend
the payment period from 30 days to 60 days.
The reason why supply chain finance is so popular is that it
benefits both the supplier and the buyer. The supplier is able to reduce its
account receivables outstanding and generate more cash flow through early
financing. The buyer can also improve its cash conversion cycle by extending
payment terms.
Today, supply chain finance is offered by most banks which
have developed technology platforms to automate transactions and track invoice
approval and settlement from start to end. Supply chain finance is most
commonly applied in industries like automotive, manufacturing and retail.
More recently, companies are exploring the use of blockchain
technology in supply chain finance projects. IBM is one of the most active
companies in exploring blockchain technology for supply chain. It has
collaborated with Sichuan Hejia (Chinese supply chain manager), Mahindra
(Indian conglomerate), Maersk Line in cross-border supply chain projects using
blockchain technology. Start-ups are also jumping on the bandwagon to help
bridge the gap in using blockchain technology, like blockchain based financial
operating network Fluent, to streamline supply chain finance.
Supply chain is a network of organizations, people, activities, information and resources involved in moving a product or service from suppliers to customers. It involves the transformation of raw materials and components to finished products that are eventually delivered to customers.
Supply chain finance refers to the financing processes that link the different parties in a transaction (buyer, seller and financing institution). Let’s say A buys goods from supplier B. B delivers the goods and invoices A, with a 30-day payment term. If B requires early payment, B may request immediate payment (at a discount) from A’s financing institution. The financing institution will then remit invoiced amount (at a discount) to supplier B. The buyer A may also request the financing institution to extend the payment period from 30 days to 60 days.
The reason why supply chain finance is so popular is that it benefits both the supplier and the buyer. The supplier is able to reduce its account receivables outstanding and generate more cash flow through early financing. The buyer can also improve its cash conversion cycle by extending payment terms.
Today, supply chain finance is offered by most banks which have developed technology platforms to automate transactions and track invoice approval and settlement from start to end. Supply chain finance is most commonly applied in industries like automotive, manufacturing and retail.
More recently, companies are exploring the use of blockchain technology in supply chain finance projects. IBM is one of the most active companies in exploring blockchain technology for supply chain. It has collaborated with Sichuan Hejia (Chinese supply chain manager), Mahindra (Indian conglomerate), Maersk Line in cross-border supply chain projects using blockchain technology. Start-ups are also jumping on the bandwagon to help bridge the gap in using blockchain technology, like blockchain based financial operating network Fluent, to streamline supply chain finance.