A 2014 Bureau of Labor Statistics report showed that companies in the top quartile of inventory turnover tend to have no more than three to four days of raw materials on hand. For metals suppliers this could lead to shortages and disrupt customers’ supply chains.
Supply chain financing, though, can help buyers and sellers work to manage supply and cost issues. The role of supply chain finance is to optimize both the availability and cost of capital within a given supply chain by aggregating, packaging, and utilizing information generated during supply chain activities and matching this information with the physical control of goods.
If you’re buying metals for product manufacturing, for example, it can be beneficial to have the cash-flow flexibility of supply chain financing, especially if you’re a smaller manufacturer. In supply chain finance, an agreement is made between the buyer and supplier to use credit facilities or other financial instruments to bring down costs and risks for both parties.
Buyers can utilize “buy now, pay later” open account transactions which can be counted as regular payments for a continuing flow of goods rather than specific transactions or set prices and quantities. Buyers can extend payment terms with their suppliers. Suppliers, such as metals service centers, can use their credit ratings to bring in customers who, without support from banks, might otherwise not be able to do business with them. Other third-party financiers can also join in the agreements and assist either side with loans or other financing instruments.
In aerospace and defense, this could mean optimizing purchasing across a global supply chain. SCF provider Taulia recently announced a partnership with Exostar, which provides cloud-based solutions to the sector, as well as to the life sciences and health care sectors. There are more than 100,000 aerospace and defense corporate buyers using Exostar’s solutions that now have access to Taulia’s supply chain finance offerings. Taulia’s SaaS product is being integrated directly into the Exostar interface so if you’re a small manufacturer providing electronics or metal parts, you could have the same buying advantages of a larger organization.
Earlier last year, TradeRocket and Hitachi Capital America entered a similar agreement. TradeRocket provided Hitachi Capital with a pool of mid-market buyers (companies with annual revenues of $25 million to $500 million) who, once underwritten, would be able to use TradeRocket’s early pay invoice option to its entire supplier network.
Giving buyers payment flexibility and suppliers access to new markets is a win-win for both bottom lines.