Supply Chain Finance may seem like a complex concept, but once you understand it, your business will be able to rely on a strategic and advantageous management practice that will greatly benefit your business.

After all, we are always looking to understand the needs of the business and, of course, find solutions to make the operation even better.

For this, there are some techniques that help not only to know how your production happens, but also what can make it even more efficient and complete, as is the case of supply chain financing . And that's what we're going to talk about today.

See how this differs from other management concepts, what are its benefits and the challenges of putting it into practice!

What is Supply Chain Finance?

Supply Chain Finance, or Supply Chain Financing, can be understood initially as a set of strategies that aim to reduce the risks on working capital management, promoting a balanced relationship between buyers and suppliers in order to meet their demand.

In practice, it is the quest to ensure favorable relations between everyone involved in production, from the beginning, with the raw material, to the end, with the sale.

This analysis is critical to improving the performance of your financial sector, as it provides greater insight into where and how you use your capital.

However, that's not all. After evaluating the financial management of your supply chain, it is possible to establish some alternatives that offer the best conditions for everyone. That is, with the payment of suppliers and the increase in the deadline for the buyer.

In addition, supply chain financing can also be understood as a way of managing the amounts involved in this entire operation.

It is not a loan per se, but a process carried out by financial institutions authorized by the Central Bank that allows, for example, advances to suppliers and advances on receivables , maintaining a win-win relationship.

And this becomes possible through this special and strategic funding.

What is the difference between Supply Chain and Supply Chain Finance?

Despite the similar names, these two concepts are not the same thing. However, they are complementary , and because of this, it is essential to understand them in the right way.

At first, Supply Chain is a well-known term, which can be translated to Supply Chain. It is about the entire process and paths taken between the production and delivery of a product . That is, it involves the removal of raw materials, transportation, industrialization of the material, finishing and, finally, distribution.

However, this chain process involves a series of departments, such as manufacturers, suppliers and retailers, for example. In this case, the evaluation of the supply chain in terms of finance is what we call Supply Chain Finance.

In summary, one concept refers to the practical stages of production , while the other brings a specialized management of this process, integrating all participants in this process under a financial perspective.

Main challenges of Supply Chain Finance

Even though it is an advantageous practice for your business, especially for managing the production chain, Supply Chain Finance has some challenges regarding its implementation.

In that case, it is worth knowing some of these points, to prepare and transform your company in the best possible way:

team integration

A supply chain consists of several stages, from the purchase of inputs to the shipment of finished products to customers. This means that there are several teams responsible for making this production happen.

Thus, one of the challenges of Supply Chain Finance is to integrate these employees, so that effort and logistics are aligned.

That way, it will be easier to bring a balance that pleases all teams and negotiate payments without compromising your working capital.

Partnership with suppliers

For Supply Chain Finance to be a success in your company, you need to have suppliers aligned with your goals.

In this scenario, finding good partnerships is one of the great challenges for managers before putting Supply Chain Finance into practice.

After all, without employees who agree with its position, it will not be possible to maintain the earnings ratio.

In addition, the partnership must benefit both, not only with advance payments, but also with fees and discounts for the company.

To achieve this, it is necessary to have an effective partnership, in addition to managing retail suppliers , which can be more complicated.

monitor the results

Still, one difficulty of Supply Chain Finance is to correctly monitor the results of this practice, at least without an adequate professional system.

This is because the changes needed to serve all parts of the chain bring certain returns to the company, and measuring whether they are positive is not always simple.

In addition, it is essential to be aware of all the impacts of this strategy, such as a delay in delivery, for example, which may not only affect the buyer, but also influence the payment relationship.

Thus, monitoring all these results is one of the challenges faced by the manager, especially if he does not have an ERP system connected to all phases.

What are the main benefits of Supply Chain Finance?

After learning about some of the challenges of this practice, many managers may become apprehensive about Supply Chain Finance. On the other hand, there are a number of benefits that accompany this strategy and we have separated the main ones for you to check out:

  • Increases availability of working capital

Supply Chain Finance changes the way the company pays and receives in order to increase the availability of working capital. This is because some expenses, such as suppliers, are paid in the present, while buyers can negotiate other more advantageous terms.

This anticipation of deadlines strengthens the amount available to cover the business expenses of both parties, in addition to counting on the payment of buyers at strategic moments.

  • more sales

With Supply Chain Finance, it is possible to balance the company's financial management in order to offer more terms and offers to buyers. This becomes an important sales argument, which can increase the number of negotiations and, consequently, the revenue received.

And, of course, more favorable and interesting buying conditions also attract more audiences, which is to your advantage.

  • Improve financial planning

Finally, it is worth mentioning that Supply Chain Finance is a strategy that helps you improve your financial planning. After all, a study of your company is necessary, allowing you to know your processes in a deeper way.

With this information, you will be able to structure a plan that is better adapted to meet your needs, reducing the chances of indebtedness and promoting more concrete actions, such as projecting sales and receipts.

Is it worth joining Supply Chain Finance?

As a strategic practice and financial alternative to move your company's resources, Supply Chain Finance is an option worth considering.

This strategy is capable of aligning the main stages of the operational process, establishing a win- win between suppliers, buyers and the business.

In addition, it also allows evaluating financial alternatives in addition to loans, with more accessible rates for anticipating receipts and advancing the payment of distributors.

This strengthens the cash flow and working capital of those involved, in addition to attracting more customers, with more flexible purchase offers.

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Written by

Sky.One Team

This content was produced by SkyOne's team of cloud and digital transformation experts.

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