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Managing Cash Flow: Supply Chain Finance Vs Invoice Factoring

Dec 10 2021 in Cash Flow Finance

Cash flow management is a critical component of business planning. Constant cash flow allows businesses to meet operating expenses while also enabling a business to grow and thrive.

While there are several strategies businesses can use in an effort to improve cash flow, including sending invoices promptly and restructuring payments, when companies are late to pay invoices, it can present significant challenges for businesses.

Many large companies offer supply chain finance as a means of providing early payments and maintaining control over their suppliers. Another far better, more convenient and controllable option for small and medium sized businesses is BCashFlow Positive invoice factoring, a tool that businesses can use to get money on outstanding invoices immediately.

At BCashflow Positive, we have over three decades of experience helping Australian businesses improve their cash flow. Our goal is to assist our clients at every stage of their business with transparency, flexibility and top-notch customer service. In this article, we will explore the differences between supply chain finance and invoice factoring as tools to help businesses manage cash flow.

What is supply chain finance?

Supply chain finance programs (also known as reverse factoring) are buyer-led financing options and can be a way for suppliers to get cash quickly at a discounted rate. It’s essentially a three-way financing solution requiring the supplier, a financial institution and the buyer to all be actively involved and facilities are normally set up or engaged by the buyer.

In reality, this is a complex transaction that disadvantages the small supplier (SME) who made or supplied the product in the first place, by providing them with a far reduced payment.

With supply chain financing, a buyer of goods or services engages a third party to pay the invoices owing to its supplier at a discounted rate. For large businesses with many suppliers, supply chain finance can be particularly beneficial as the cost can be either absorbed by the buyer over extended payment terms or as in most cases, passed onto the supplier by way of large discounts taken for early payment. Suppliers should be aware of the potential to be taken advantage of via the buying power of their customers (particularly much larger corporations).

As mentioned above many big companies are using supply chain finance schemes, partnering with third party providers to fund early payments for suppliers at a discount with the reported strategy of taking much longer than the recommended 30 days to pay bills.

The Commonwealth’s Payment Times Reports Register became public last month, allowing small businesses to access information about payment practices from large companies and government agencies. It covered the six months to June 2021 and highlighted and named some of the big companies paying their invoices late while also using supply chain finance programs.

It could be argued that they are forcing the hand of suppliers to adopt the supply chain option if they wanted to be paid on time and it is clear that these large corporations would not enter into such arrangements if there was not a cost benefit to them.

What is invoice factoring as offered by BCashFlow Positive?

Also known as invoice finance, invoice factoring enables businesses to unlock instant cash flow. While it sounds similar to supply chain finance, invoice factoring works in the opposite direction to reverse factoring.

In supply chain finance/reverse factoring, the buyer initiates the process where a financial institution factors the supplier’s invoice. On the other hand, traditional invoice factoring is initiated by a supplier who requests early payment at a discounted rate for their own outstanding invoices using these unpaid invoices as a form of security against the debt.

Invoice factoring enables the supplier to negotiate the terms, tailored to their specific circumstances. Essentially invoice factoring or financing enables businesses to access cash flow from their unpaid invoices at the time of issue, rather than waiting for the buyers of their goods or services to pay the invoices.

Is BCashFlow Positive a better option for your company?

Effective cash flow management as supplied by BCashFlow Positive is essential for businesses of all sizes. Often there is significant working capital tied up in unpaid invoices and businesses could certainly benefit from accessing that cash for immediate use.

When it comes to supply chain finance, the supplier will not be able to negotiate discounts and other terms, so it’s important to weight up the pros and cons of each to determine which is better for your business.

As a leading invoice factoring company, at BCashflow Positive, we offer invoice factoring for small to medium sized businesses. A form of finance with no hidden fees, invoice factoring allows businesses to finance sales invoices to help cover the gap of slow payments. If you’re unsure whether invoice factoring is right for you, speak to an expert at BCashflow Positive today by calling 1300 937 292.

What Our Clients Say

"We used BCashflow Positive when our bankers didn't want to know us, as we operate in an industry that was going to be affected by the introduction of the carbon tax.Traditional lenders were unable to deal with the uncertainty and risks.
BCashflow Positive understood the risk and assisted us with our cash flow, which was great"

Financial Controller, Solar Manufacturing Company, WA

"Getting instant funds from our invoices is crucial to our business success. It means we can pay wages on time and grow our business. The staff are also great to deal with."

Owner, Recruitment, NSW

"We engaged BCashflow Positive to get on top of our ATO obligations. Constant cash flow allows us to meet our operating expenses and grow our business."

Accountant, Earthmoving, QLD

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