19 Sep The benefits of supplier payments finance
Supplier payments finance offers something different for growing businesses. It injects working capital into the cash flow cycle at a crucially earlier stage than invoice finance. This allows successful businesses to seize opportunities and secure optimal terms within commercial relationships. Here we discuss the wide range of benefits that supplier payment finance can provide for your business.
What is supplier payments finance?
Supplier payments finance is designed specifically to support businesses that want to boost their working capital, optimise their commercial terms, fund opportunities and improve supplier relationships.
Often used in conjunction with other forms of finance, supplier payments finance provides a credit facility that can be used to pay any supplier invoices, as and when they arise. Flexible and cost effective, these facilities can provide a term of credit that can be used to ensure payments are made on time, while keeping a healthy cash balance.
How is it different?
Supplier payments finance differs from invoice finance in that it doesn’t require businesses to secure lending against unpaid customer invoices. This makes the cash accessible earlier in the supply chain and allows businesses to fund potential growth opportunities in advance of customers making purchases. This means that the cash can be used for upfront costs. And it also provides flexibility for businesses that have overseas debtors, contract debtors, a cash-buying client base, or seasonal demand cycles. All of which generally preclude invoice finance.
Also, if a business has no customer invoices to draw credit from, or their business model or industry isn’t suitable for invoice finance, then supplier payments finance can provide a solution. Often separate from the underlying contract between a business and its suppliers, a supplier payments finance facility does not usually take title of goods, invoices or other assets.
Why is there a need for it?
Within the supply chain there are often fundamental conflicts of interest. Suppliers are looking to convert their inventory into cash as quickly as possible, thereby improving their cash conversion cycle. Buyers look to keep working capital within the business as long as possible to fund operations. They may look to stretch payment terms in order to achieve this. The case is often the same with their customers. Supplier payments finance can facilitate all of these goals.
Businesses looking to manage their working capital through lengthened terms of trade need a flexible and useable finance option. The UK has seen increased costs in supplier credit, coupled with the general squeezing of traditional forms of credit. This means that fast-growing businesses without either the large capital or raised customer invoices often required to secure traditional or invoice finance, are in need of a different kind of credit facility.
What are the benefits?
Eased cash flow pressure
Often the conflicting priorities of suppliers, buyer businesses, and their customers can cause gaps in cash flow. Supplier payments finance injects cash at precisely the right stage to help fund a seamless trading cycle. It bridges the gap between paying suppliers and receiving money from customers. The pressure on cash flow that can inhibit growth and create headaches for businesses is eased.
The improved working capital position means that the liquidity is there to fund opportunities as they arise. For example, say your business has performed extremely well at a recent trade fair. You’ve secured a large order from a new client that could take your business to the next level. With supplier payments finance you know that the cash will be available immediately to pay for the necessary materials to fulfil that order. With additional days credit available, you can seize the opportunity knowing that you’ll have plenty of time to pay back the credit.
Supplier payments finance is particularly good for those businesses experiencing strong growth and looking to expand their horizons. Tendering for larger contracts that would otherwise stretch cash resources becomes possible thanks to the readily available credit. This helps businesses to achieve their growth objectives.
Stock levels can be increased to meet new levels of demand of larger customer orders. Being able to pay suppliers in advance of receiving payment from customers facilitates import and export opportunities too. Importing from competitive suppliers overseas, and international expansion through exporting becomes possible.
Many businesses also find that the extra breathing room within their working capital cycle allows them to invest in the business. Supplier payments finance maximises opportunities for expansion, whether through bridging fixed asset purchases to upgrade services, or funding new product lines to boost competitiveness.
Smoothed seasonal variations
Available working capital is injected early in the supply chain. This makes it easier for your business to buy in advance, optimise stock levels, preempt and be better prepared for seasonal fluctuations. This ensures that your operations are properly aligned for maximum success.
Improved supplier relationships
All suppliers appreciate a buyer that orders and pays consistently and promptly. Having the working capital available to make prompt payments will improve your reputation and value in the eyes of your suppliers. This translates into an increased ability to secure early settlement discounts, improved terms of supply, and the potential to negotiate reduced costs in goods over time.
Improved customer terms
The unique nature of supplier payments finance means that you do not have to wait for a customer invoice to be raised before applying for finance. Having the working capital available to ease cash flow pressure makes it easier for your business to offer extended credit terms to your customers. This means greater potential for flexibility in your credit policies, improved competitiveness, and a wider net for catching valuable customers.
The ‘pay-as-you-use’ structure of supplier payments finance means that there are usually no setup or non-utilisation fees attached to the facility. It can be used precisely when it’s needed, with no added costs. This means increased control over your finance arrangements and greater flexibility over its usage.
The supplier payments finance process is streamlined. This, coupled with improvements in platform and customer interface technology also means that there is little administrative burden attached. This allows businesses to concentrate on their customers.
Optimised financial arrangements
Unsecured supplier payments finance facilities such as the Pay4’s product do not compromise security with other funders. This means they can work in conjunction with other finance facilities, including traditional bank finance. You can combine finance options to construct the optimum model for your business’s needs.
Reduced concentration risk
Businesses are also looking to reduce risk in the current economic climate. The complementary nature of supplier payments finance, coupled with the fact they do not rely upon unpaid customer invoices translates into reduced concentration risk and improved control over repayment.
The smart choice for growth-focused businesses
Supplier payments finance is designed for growing UK businesses that don’t want their growth constrained by lack of working capital. It is of particular use if your industry or business model doesn’t lend itself to invoice finance, or if you feel that traditional forms of business finance do not provide adequate funding for your business aspirations.
The simplicity, flexibility and stability that supplier payments finance creates within the supply chain allows businesses to make the most of opportunities while securing improved terms for themselves and their customers.