To make things a little clearer, let’s look at a hypothetical example of a supply chain finance solution in action.
A buyer purchases an order of goods from a seller. Typically, the supplier would ship the goods to the buyer, then submit an invoice under their payment terms (of, let’s say, net 30). That would leave the buyer with 30 days to pay their invoice.
However, if the supplier wants their invoice paying faster (or the buyer doesn’t have the cash available or would rather keep hold of it to use as working capital), they can utilize an existing supply chain finance solution. This then implicates a third party – the financer or lender – who will pay the invoice immediately on behalf of the buyer and then extend the payment terms on which the buyer must pay them back, perhaps to 60 days.
This is a win-win situation, the buyer gets to keep hold of their working capital for longer without spoiling their relationship with the supplier, and the supplier gets to be paid immediately giving them more working capital of their own to deploy. There are plenty of other benefits, too.
