In traditional SCF or reverse factoring models, the supplier’s ability to access funding from a financier depends on both the buyer’s collaboration and their status, standing, size, and credit rating. Suppliers need to approach their biggest customers, the ones on whom they already depend for a large proportion of their income, and ask the ever so nicely to pre-approve their invoices for funding. This gives the buyers leverage to ask for even more favourable terms. If the buyer is indeed a large and pore full organisation, their procurement team will likely leap at this opportunity.
Don’t go begging
As a supplier, SCF models tend to rely on your buyer’s credit rating being good. Let’s say the buyer is a large supermarket chain, in which case, their credit rating will be strong; if a supplier humbly asks for SCF and pre-approval, the buyer can and often does ask for all sorts of favours in return. Smaller, loyal buyers who would gladly cooperate may just not meet the lender’s criteria. They are probably more dependent on you than the other way around and may have their own cash flow challenges. However, they are not of interest to the financier.
What if, instead of begging bigger buyers for invoice pre-approval so you can access funds early, you offered them longer to pay? Wouldn’t it be good to support them instead of going cap in hand to the mega buyers?
This was some of the thinking that went into our design of a new set of financing options. Other key points that seem inequitable and unattractive have also been tackled.
Protect your Credit Rating and theirs
Most supply chain finance has undesirable implications for how the product is reported on financial statements. It makes an impact on credit ratings too. SCF typically works best when the buyer’s credit rating is higher than the supplier’s and then negatively affects the supplier’s credit rating. Our new model avoids creating a financial debt, so it does not affect anyone’s credit rating.
This means short term credit can be accessed without long term implications: no downside, no hassle, no proving oneself to financiers or ‘factors’. We have options to allow suppliers faster access to invoice dues or guaranteed on-time access to those funds. We have options that let buyers buy extra time to pay or pay on time as usual, while the supplier gets paid early and they get, for example, a preferential rate on goods.
If this new model has piqued your interest, then please get in touch. The banks we work with also see the problems in traditional models and want to change the status quo for the better through innovation.