Supply chain finance solution a source of funding working capital

Standard Bank has developed a set of supply chain finance solutions aimed at helping businesses of any size improve financing of their working capital, Vonani Mabunda, Product Head: Supply Chain Finance at Standard Bank, tells SmartProcurement.

Two supply chain finance solutions – receivables discounting and supplier finance – offer alternative financing tools based on companies’ trade receivables and enables them to settle their creditors early without impacting on their working capital.

Large trade deals have a significant impact on a business’ cash flow, says Mabunda.
The time spent waiting to receive settlement on goods or services has a direct impact on working capital and may result in the business being cash-strapped for the much-needed funds to manage day-to-day business expenses.

Traditionally, most businesses have financed their working capital through sources such as overdraft facilities. However, with the implementation of a host of new regulatory requirements on banks, such as the Basel III capital requirements, these funding sources will become more expensive as banks are increasingly required to adhere to stricter capital provisioning, he explains.

Receivables discounting allows you to leverage your trade receivables, to fund working capital at very attractive rates. Facilities can be structured according to either your risk profile or that of your debtor’s. Using Standard Bank’s supplier finance solution to pay your suppliers early or on time is an excellent way to leverage your balance sheet in support of your suppliers while optimising the use of your working capital.

“These solutions have been in use in developed economies such as Europe and the US for a long time, we are however seeing a growing appetite for their use locally. In addition, supplier finance enables large corporates to support their smaller suppliers to obtain financing at favourable rates,” notes Mabunda.

The finance solutions are available to most sectors, including mining, metals, automotive, manufacturing, telecoms and retail.

Businesses that effectively manage their supply chains and the resultant cash flows have a distinct advantage over their competitors that do not. The ability to pay suppliers earlier without dipping into capital reserves will have a positive influence on your cash flow.

To achieve this, it is imperative that you and your trade partners have access to affordable financing. The correct selection of a financial institution to help you sail these choppy waters is the first of many decisions that needs to be made – probably the most important.

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