We have already seen how Supply Chain Finance provides a fast, smart solution to businesses who buy significant amounts of goods from suppliers in order to on-sell their own product. Uniquely however, Supply Chain Finance also benefits the firm’s suppliers.
Let’s take as an example an expanding Australian manufacturer or wholesale trade business: to meet each new order, it will need to purchase considerable quantities of supplies or raw materials and chooses to improve its cash flow situation by arranging Supply Chain Finance from TIM TIM will then pay the company’s supplier invoices as early as possible – often within 48 hours – in exchange for a small early payment discount. When the business settles up with TIM after 30, 60 or even 90 days, that discount will cover the cost of the financing.
The buyer business in this scenario gained a cash flow benefit of up to three months – for free! But the benefits didn’t stop there: its suppliers also benefitted significantly.
Cash is King
There is an economic theory that says, in a nutshell, that money in your hand or business bank account today is worth more than a promise of the same nominal sum several weeks down the line – even if you are cast iron guaranteed to get paid on that date. Economists call this ‘the time value of money’, but most business people and traders know it instinctively and use another expression: ‘cash is king!’
The reason this theory is instinctively grasped by business owners is that all businesses have bills to pay, and finding the money to meet those outgoings can be a major stumbling block to growth, a regular worry for the owner, or even a killer for the business. Many promising SME has gone under because of cash flow problems despite theoretically turning a profit. Sadly, many more will, but with Supply Chain Finance you can help ensure that isn’t one of your suppliers.
Free Cash Flow Finance For All
By using Supply Chain Finance, you are effectively providing a cash flow finance service to all your suppliers. Without having to arrange a thing, they get the option to get their cash today. It’s a lot like the flexible invoice discounting service that TIM is strong at: companies can bring their accounts receivable forward by weeks or even months and use the cash to meet their own growing working capital requirements as healthy, expanding businesses.
They can take on extra workers; finance equipment purchases without having to go through the onerous and expensive process of arranging a business loan; and if they want to, they can pass the goodwill down the line by offering an early payment of their own. With just one financing arrangement that is non-recourse to the supplier and requires no security from both the supplier and the buyer (TIM’s client), the culture of late payments has been dealt a huge blow, and several businesses have been able to reduce their funding and operating costs while improving their cash flow management.
Supply Chain Finance is that rare thing: a real win-win situation. Bringing the receipt of accounts receivable forward by even 30 days is a significant cash injection for many trading businesses, and that money can be put to good use. The proof is in the pudding: with TIM, no business is pressured into offering an early payment discount, but most do because they know the time value of money and the cost of arranging alternative business funding.
They choose to get tomorrow’s cash flow today.