Supply chain finance -Money Matters With Mel Weekly Newsletter — Issue #23

Last week we discussed Invoice Factoring as one way of financing working capital. Invoice factoring is just one piece in Supply Chain Finance (SCF) and Supply Chain Management. SCF connects buyers & sellers with financing institutions. As a result, it helps corporates to lower financing costs and improves efficiency. Most importantly, it unlocks working capital tied in the supply chain. SCF services include Loans, LPO Finance, Invoice Discounting and Factoring

Normally the buyer of goods (the debtor) negotiates payment terms. For example, 60 to 120 days from the delivery of the goods to the settlement of the invoice. Meanwhile, the buyer generates revenue before paying the original invoice. Kenyan Supermarkets work like this.

Likewise, the seller requests financing to have immediate access to working capital. Cash allows corporates to increase stocks or to pay salaries. In conclusion, SCF increases liquidity and keeps production moving along.

The Financing Institution works as an intermediary; firstly, it onboards and runs the due diligence on the counterparts. Following the Know-Your-Client (KYC) procedure, it assesses the eligibility of the seller and its debtors.

How Does Supply Chain Financing Work?

Supply chain financing can be summed up in the following steps:

1. KYC and due diligence are performed on seller and debtor(s).

2. The Seller invoices the debtor then sells the invoice to the financial institution.

3. The Financing Company advances about 80% of the invoiced amount. So the institution protects part of its exposure from the insolvency of the debtor.

4. At maturity, the Debtor pays the whole amount of the invoice to the financing company account.

5. The Intermediary re-pays the seller the remaining 20% minus the agreed fees.

If you are a Health care or Food and related commodity trader with a monthly turnover of KES 3M and above and want more information about supply chain finance click here and I will advise you on the next steps

Somali PM M.H Roble meets with Kenya’s Ambassador Lucas Tumbo, June 30 2021

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About Melvin

I am a Coach, Mentor and Trainer — visit my profile. I am passionate about making small businesses thrive in the marketplace by enabling business owners to develop a healthier relationship with money.

Wishing you a great week ahead.

I leave you with a quote “You must gain control over your money or the lack of it will forever control you.” — Dave Ramsey

Business advisor to Doctors,Dentists,Pharmacists and Entrepreneurs