Supply chain finance (SCF) can be understood as a process that involves using a set of tech-based solutions that cuts financing cost, thereby improving business efficiency between buyers and sellers in a sales translation. The cost-cutting is achieved by automating transactions. SCF enables businesses to get short term credit, and it is usually used to optimise the flow of capital for both buyers and sellers.
The most important utility of SCF is providing sufficient liquidity in the supply chain so that the movement of goods is not blocked owing to the shortage of funds. The invoices generated by a business are discounted, and loans are advanced, enabling the businesses to operate without disruption, which could otherwise appear in the form of bill clearance and delayed payments. Besides, a supply chain loan ensures minimal disruption in the manufacturing process.
In essence, SCF provides efficient financing of the value chain. It helps both the buyers and the sellers improve cash flow and reduce the working capital by utilising the buyer’s credit rating. Besides, it helps get short-term credit that allows buyers to lengthen their payment terms and provides suppliers with an option to receive payments earlier.