Magazine 03: Supply Chain Finance
Capital Financing – with Supply Chain Finance all parties involved win
The times on the world market are uncertain – flexibility is the order of the day. But in order to be able to react flexibly, high cash inventories are indispensable. Creating this is a challenge for many companies. Away from classic working capital financing, new, innovative methods such as reverse factoring can be a solution.
Reverse factoring secures working capital financing
Ultimately, the aim is to create high cash and optimal stock levels and thus tie up as little capital as possible. Companies often try to achieve this by extending payment terms. This causes problems for suppliers, who in turn also depend on high capital stocks. This dilemma can be solved by companies and their suppliers working together on working capital financing: In reverse factoring, the company passes on its supplier’s receivables to an investor who provides interim financing for a fee that is lower than the refinancing rate. The supplier thus receives its money even earlier, while the company can use its cash reserves longer and pays later – both parties win.
Procurement makes a valuable contribution to working capital financing
Working capital financing is generally the responsibility of the finance department. For a successful implementation of methods from the supply chain finance area, however, it is dependent on cooperation with other departments. Early and intensive involvement of the Procurement department is particularly crucial. Procurement has the closest contact to suppliers and can promote the topic as a networker within and outside the company.
Read the cover story of our digital magazine to find out how you can put this into practice and find out in our expert interviews what role working capital financing plays in companies.
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Dear Readers,
As uncertainty rises in the world market, flexibility is the order of the day. To achieve this, companies are now more than ever dependent on cooperation with suppliers – one of the most important tasks for procurement now and in the future.
In our focus topic, we show how you can create financial flexibility by implementing supply chain finance programs and at the same time take the relationship with your suppliers to a new level: Towards close cooperation which is beneficial for both parties.
Another way to optimize working capital is to reduce lead times and thus avoid tying up capital in transit. The new Silk Road offers this possibility – we have investigated the acceptance and potential of the route. We interviewed Tony Yu, our General Manager in China, about this and other current events affecting the supply relationship between European companies and their suppliers.
We hope you enjoy reading it,
Thibault Pucken, in behalf of the Managing Directors
