The growth of supply chain financing (SCF) has accelerated in response to continued credit and liquidity challenges in today’s market. As more companies adopt SCF programs, the dialog has moved from conceptual solution to fast and practical implementation.
This article reviews SCF in light of current market challenges around working capital and related risk issues and:
- Offers a practitioners’ guide to implementing a SCF program;
- Describes the SCF value proposition—measurable financial value and strategic benefits; and
- Highlights considerations in choosing a banking partner.
Working capital as supply chain vulnerability
Access to capital continues to be severely limited in a tight credit environment. The cost of financing is at a premium, even while supply chains are intensifying efforts to reduce costs, given stalled revenue growth in the current global recession. Despite speculation of a resurgence in the use of letters of credit (LCs), anecdotal evidence suggests a continued migration to open account—driven in part by cost-reduction efforts.
A SCF program requires customized solutions tailored to a buyer's business systems and processes.