Supply Chain Strategy – How To Set Up Supply Chain Finance For Your Business In 5 Simple Steps

Many people mistakenly think that profits are what drives business growth. However, if the bulk of your business income is tied up in unpaid invoices, it might as well not be there at all. What truly frees you up to grow and reinvest in your enterprise is cash flow.

Though it’s worth putting measures in place to reduce the amount of lag time between invoice issuing and payment, there are other ways to master your cash flow. One of the most reliable long-term options is supply chain finance (SCF).

The best supply chain finance providers allow you to improve both your own liquidity and that of the companies with which you do business. The following five steps will help you get started:

1. Do your research

This is one form of business finance that’s bound to fail if you’re not adequately prepared. Also known as “reverse factoring,” supply chain finance requires a specific style of collaboration between the buyers and sellers involved. This makes it powerfully positive in more ways than one as it can help you establish strong professional relationships, with your suppliers in particular. To ensure you get the most out of it, dive into as much SCF research as you can before making any moves.

2. Create a strategy

Once you understand what supply chain finance is all about, it’s time to determine your stakeholders, set out your objectives, and pull together your team. Take your time in selecting a banking partner who displays a commitment to helping you achieve your desired objectives. Whether you want to optimize supplier payment terms, improve your working capital, or any other major goals, you need to ensure these outcomes are clearly delineated and agreed upon from the outset.

3. Communicate

With supply chain finance, it is imperative to ensure your suppliers understand what you’re planning and how it will benefit them. It’s also important to be upfront about any challenges that may crop up as this new system is implemented.

To ensure an easy transition, don’t force your new strategy on suppliers. Instead, offer them a number of options to choose from, with incentives applied to the payment terms that will be most helpful to your business. Your overall objective is to create win-win scenarios for all involved, so make sure your suppliers understand this.

4. Streamline your supply chain

If you have too many suppliers, SCF can be tough to manage; not to mention the fact that you need a certain spend per supplier to make the program worthwhile in the first place. With this in mind, it may be worth overhauling your supply chain so that you can work with a smaller number of trusted and reliable suppliers who are willing to get on board with your new SCF program.

5. Overhaul your systems

Managing your supplier relationships will be even more crucial under your new system. This means everything from your software to your internal processes and fraud checks will need to be overhauled and brought into line with the new way of doing things. This will likely also necessitate training for any staff members involved with your supply chain management.

Though it is one of the more complex forms of business finance, demanding more from you in terms of research, system overhauls, and communication, supply chain finance can reward you with a more streamlined buying and selling system. Above all, it offers the reliable cash flow you need to help your business thrive. Follow the tips above to get started on this new venture.

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