Supply Chain Finance

In a globalising economy, industrial value chains are becoming more complex, spanning more countries and providers than ever before. While the flows of goods are increasingly integrated and optimised, information and finance flows are often fragmented. The credit crisis has revealed the structural weaknesses of this system. During the recent credit crisis liquidity dried up (Ellingsen & Vlachos, 2009) and many companies adopted aggressive cash management strategies to safeguard their cash levels in the face of declining credit from financial institutions. One aspect of these new cash management strategies included extending payment terms for their suppliers. Companies have continued to push payment term extensions with suppliers as a means of freeing up cash for purposes such as investment, dividends and share buybacks (NG, 2013). Another reason for the continued pursuit of aggressive cash management strategies is that companies feel that they do not have sufficient working capital to take advantage of an economic upturn. Suppliers to these companies are now feeling the effects of extended payment terms by having to obtain more and more financing to continue operations.

 

This is where Supply Chain Finance (SCF) comes in. Supply Chain Finance can be defined as “Financial arrangements used in collaboration by at least two supply chain partners and facilitated by the focal company with the aim of improving the overall financial performance and mitigating the overall risks of the supply chain.” (Steeman, The Power of Supply Chain Finance, p.23): Download “The Power of Supply Chain Finance”