Supply Chain Financing: Why You Need It and How to Do It Right

 

Introduction

No matter what size your business is, you need to be able to keep the right amount of stock on hand at all times. If you don't have enough supply to meet customer demand, sales will suffer and customers will go elsewhere—and if you have too much stock on hand, it's going to sit there until someone buys it. The best way to ensure that you don't end up overstocked or understocked is through supply chain financing. This article will give an overview of how supply chain financing works and why it's important for any business owner to consider using this type of financial instrument in their operations. After reading this article, I hope that you'll feel more confident about making smart decisions about how much inventory your company needs as well as how best to manage those inventories once they're in place!

What Is Supply Chain Financing?

If you’re already familiar with working capital financing, supply chain financing is very similar. Supply chain finance is a type of working capital finance that allows you to use the money for inventory, which makes it ideal for small businesses who are looking to grow their business.

Supply chain financing can be used in several ways:

·         To pay suppliers during times when cash flow might be low

·         To purchase inventory that can then be sold later on if your company needs more funds (for example, if you want to open up another store or hire more employees)

·         To help fund growth opportunities like mergers and acquisitions

Why Do You Need It?

According to the American Trucking Associations, the average truckload carrier has a debt-to-equity ratio of 33%. This means that for every $100 in assets, you have $33 in debt.

The ATA has also stated that accounts receivable (AR) is a top concern for trucking companies—largely because it can't be sold as quickly or easily as other types of assets and thus potentially represents a riskier investment. Accounts receivable financing helps companies manage this risk by providing them with immediate cash flow.

Trucking companies also often need capital equipment financing to purchase new trucks or trailers and ensure they're on time and within budget. One example is an owner-operator who needs money to expand his fleet but doesn't currently have enough cash reserves available; he may choose to purchase additional vehicles with a loan from his lender rather than try to save up enough money over time himself—and run the risk that prices will increase between now and when he can afford it on his own

What's the Difference Between Supply Chain Financing and Factoring?

Supply chain financing is a type of factoring. The main difference between supply chain and traditional factoring is that the latter is used for smaller companies, while the former can be applied to businesses of all sizes. Supply chain finance providers often have higher minimum requirements than traditional factoring firms, so they are not well-suited to small businesses with thin profit margins or no profits at all.

However, there's still plenty of room for smaller companies in this market; supply chain financing can be used to finance assets like inventory or accounts receivable (meaning money owed by customers). For instance, Apple uses third-party suppliers to manufacture its products; these manufacturers require cash up front before they begin work on an order from Apple, who pays them back when it receives payment from retailers like Best Buy and Walmart. This allows Apple—a huge company with significant resources—to maintain control over its suppliers without having direct access to their financials or management teams.

How Can You Use Supply Chain Financing to Your Advantage?

·         Financing can help you purchase inventory.

·         Financing can help you build inventory.

·         Financing can help pay for operating expenses, such as labor and utilities.

·         Financing can also be used to help pay for capital expenses, such as equipment and machinery.

·         Finally, financing can be used to cover taxes and insurance expenses associated with your business activities.

Conclusion

Supply chain financing is a valuable tool for any business that operates within the supply chain. It can help you improve cash flow, decrease costs and increase profitability. But before you start looking at ways to improve your supply chain financing strategy, it’s important to understand what this type of financing entails—and why it matters so much in today’s economy.