BUYER

The buyer, also known as the purchaser, is the entity that requires goods or services provided by the supplier. In terms of supply chain finance, the buyer often initiates the process by placing an order with the supplier. Once the goods or services are delivered, the buyer approves the invoice for payment. In some supply chain finance models, the buyer’s creditworthiness is used to secure better financing terms for the supplier.

supplier

The supplier, also known as the seller, provides the goods or services required by the buyer. After delivering the goods or services, the supplier issues an invoice to the buyer. In supply chain finance, the supplier can choose to receive early payment from the funder (often a financial institution), thus improving their cash flow and working capital.

funder

The funder, often a bank or other financial institution, plays a critical role in supply chain finance by providing the necessary liquidity. Once the buyer approves the invoice, the funder pays the supplier the invoiced amount (minus any fees or interest). The funder then collects the full invoice amount from the buyer at a later date. This arrangement benefits all parties: the supplier receives payment quickly, the buyer gets extended payment terms, and the funder earns fees or interest.

Selective Receivable Financing (Invoice Discountin

Selective Receivables Financing, also known as Selective Invoice Financing or Invoice Discounting, is a type of short-term funding that allows businesses to borrow against specific invoices or accounts receivable1. This can be a useful tool for companies that need quick access to capital but may not qualify for traditional financing1.

Here’s how it works: The lender provides funding to the borrower against open and approved accounts receivable1. The borrower then uses the funds to pay their bills and expenses1. Once the invoices are paid in full by the customer, the lender receives their principal advance amount plus any interest or fees that were accrued.

There are several benefits to using Selective Receivables Finance. Some of these benefits include:

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Invoice Discounting Vs Factoring

Invoice discounting and factoring are both forms of invoice finance that involve selling unpaid invoices to a financial provider, who then gives you a cash advance on the majority of the unpaid balance12. However, there are key differences between the two:

Control Over Sales Ledger: With invoice discounting, you remain in control of the sales ledger, and it remains your responsibility to chase invoices12. But with invoice factoring, you sign over control of the sales ledger to your finance provider12.

Confidentiality: With invoice factoring, your finance provider will deal directly with your customers, so your customers will know you’re using invoice factoring2. However, with invoice discounting, your relationship with the customer remains the same.

Cost: Invoice factoring may be more expensive because it involves more work for your lender, they may charge a higher fee than they might with invoice discounting2.

Risk for Lenders: Factoring is often seen as the least risky of the two invoice finance options because your finance provider has control over collecting payments2.

Suitability: Invoice factoring is suitable for small and medium-sized businesses, while invoice discounting is ideal for medium-sized and larger businesses3.

In summary, the choice between invoice discounting and factoring depends on your business’s specific needs and circumstances.

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Flexible Repayment Terms

With traditional financing, it can take weeks or even months to get approved and receive the funding you need. With selective receivables finance, you can get the funding you need in as little as 24 hours after invoicing your customer

SRF

Unlike traditional loans, selective receivables finance does not rely on past revenue or cash flow1. This type of financing is based on the amount of open receivables a business has1. This can be helpful for companies that do not have the past cash flow or revenue to support a traditional loan.

ALTERNATIVE FINANCING

Supply chain finance and traditional financing are both methods of obtaining capital, but they operate in fundamentally different ways:

Control Over Sales Ledger: In traditional financing, banks often have control over the sales ledger and facilitate the exchange of payments for shipping documents1. On the other hand, supply chain finance is a flow-based finance technique where banks have a lower level of intermediation in the activities1.

Repayment Schedule: Traditional credit lending requires you to make payments towards the interest and principal almost immediately2. In contrast, supply chain finance focuses on unlocking working capital for your company through the purchase of your accounts receivable2. You never have to repay the funding from supply chain finance2.

Availability of Capital: Traditional lending is almost impossible to obtain when you actually need capital2. On the other hand, supply chain financing is available when you need additional cash flow2.

Replenishable Source of Capital: Unlike traditional financing, which is a one-time injection of money into your business, supply chain finance can serve as a constant stream of capital into your business2.

Risk Mitigation: Traditional or documentary trade involves banks acting as intermediaries to facilitate the exchange of payments for shipping documents, recognized as transaction/shipment-based finance, risk mitigation, and payment for underlying transactions between buyers and sellers1. Supply chain finance, however, is structured based on agreements, representations, and warranties between the parties in the transaction1.

In summary, while both supply chain finance and traditional financing can provide businesses with the capital they need, they differ in terms of control over sales ledger, repayment schedule, availability of capital, and risk mitigation