Supply Chain Finance, the next wave of business growth


Eliminate Distributor Cash Flow Bottlenecks, Especially for Small and Medium Businesses

We will start with a story. Enter the world of a leading manufacturer of LED lights. What you are seeing is a complex ecosystem that has to work in sync if every element is to keep them at the top of the market. Several suppliers work with you to make sure you get the materials you need on time, at the right price, and of the quality you need. You are as dependent on them as they are on you. The other side is a similar story – an array of distributors scattered around – some large, most setups small. Balancing that is an art, of course. It’s also one of cash flow and strained relationships.

Focus on distributors here. They need enough funds to make sure they have inventory on hand. It’s no surprise that most of these distributors struggle with regular cash flow issues. This delicate balance is further complicated by low demand and the credit problems they face.

Most distributors – like in the story above and the ones you deal with in real life – have similar stories of issues to tell. Being small businesses, it is likely that they do not have the correct documentation to obtain working capital loans. Many of them are also startups and have little or no business know-how.

Being dependent on distributors to move their inventory, manufacturers take it upon themselves to manage the situation. Supply chain finance solutions play an important role here. Manufacturers can influence the cash flow situation through working capital loans and other methods that ensure that the supply chain stays smooth and that they can also effectively manage their working capital.

Is the cash flow problem for distributors specific to the last two years or is it structural?

It is a fact that difficult questions have arisen in recent months due to the Covid pandemic and the upheavals it has brought about. Consumption has declined and has affected the entire supply chain. But the cash flow problem also existed before the pandemic. The pandemic has just further complicated the situation.

For most distributors, the margins they work with are quite low, especially if you are not dealing with large amounts of product. Having the cash on hand to take larger amounts is one solution, but it is quite difficult to manage if you are a small business. There is also the option of working capital loans. This is an area that has been affected by the Covid. Banks and financial institutions are reluctant lenders these days.
But even if things were normal, the rates at which these funds are obtained would ultimately leave little for distributors. These are structural issues, and are currently under pressure testing, with Covid.

Supply chain finance is the answer

Supply chain financing is a valid consideration, as it can help suppliers and distributors obtain funds quickly, which they can use to finance other product purchases.

With faster turnover of cash in the system, there is more predictability and control. It also helps in the management of working capital and fuels the growth of the business.

The question is: how to transparently implement supply chain finance? Technology plays a key role here, with supply chain finance platforms making it easier for you and your suppliers.

Integrated supply chain finance platforms go further by enabling additional capabilities, including cash management and ERP reconciliation.

Finance management

You can generate a lot of value by managing the funds available in the organization more effectively. By making sure your supply chain is functioning optimally, you influence your cash flow management. Your funds can be used to provide working capital loans to your distributors. This becomes a great investment for your cash flow and also serves to inject capital into your ATMs.

Supply fusion technology platforms can help you do this. These technological solutions automate the management of receivables and debts and also manage

use of funds. You can also manage the credits available to low-risk ATMs through data-driven credit decisions.

ERP reconciliation

It is important to have technological solutions that work with existing ERPs. It allows you to automate your processes while working alongside your ERP to keep them running smoothly. The CTO or the innovation manager has a role to play here. Streamlining your cash flow is important if you need to invest in your supply chain.

FinTech solutions help you here. Since most of them are external to ERPs, removing the technological bottleneck also becomes a priority. Next-generation SCT platforms integrate seamlessly with your ERP, speeding up invoicing, collection, documentation, and more.


Manufacturing organizations can play a leading role in ensuring the stability of the entire supply chain. By offering early payment of invoices or through working capital loans, the manufacturer can significantly improve cash flow for suppliers and distributors. The value you create isn’t just in the cost of the funds you earn, but also in fueling the growth of the small and mid-cap organizations that depend on it.

Technology has a major role to play here. Next-generation SCF platforms can help you make better decisions and manage your funds more efficiently. By automating processes and communication, you can ensure that your cash management is more efficient. There is a lot of value to be gained from supply chain finance, both short and long term. It is also one of those areas where the rewards are manifold for the risks you have to take. There is of course some risk, but data-driven decisions are key to managing this.

The writer is co-founder, Cashinvoice

DISCLAIMER: Opinions expressed are those of the author and Outlook Money does not necessarily endorse them. Outlook Money will not be liable for any damages caused to any person / organization directly or indirectly.

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