If the last few years have taught companies anything, it is the importance of building smart and resilient supply chains that can withstand unprecedented disruptions in the global market. This has quickly has led to a renewed focus on improving the integrity and efficiency of global supply chains.
Financial institutions worldwide are now developing their own innovative technology-based solutions that lower financing costs while improving sales efficiency between buyers and sellers. Together, these institutions are rapidly building a robust industry known as supply chain finance.
According to the SpendEdge Sourcing and Procurement Reports, the SCF market is expected to increase by 82.76 billion year on year, with the CAGR accelerating by 17.21%.
SCF solutions work as a type of cash advance. The system enables financial institutions to pay sellers faster by betting on the credit rating or other security of their buyers. This provides a lot of advantages for sellers and smaller businesses while lengthening payment terms for buyers.
SCF solutions are committed to improving automation, freeing up liquidity for both buyers and sellers, and increasing transparency within the supply chain. These solutions can help companies achieve important goals to their customer base, such as green initiatives and improved communication.
Changes SCF brings to ecommerce and retail
Managing retail in the ecommerce market is a constant balancing act between having too much or too little inventory. One risk incurring unnecessary expenses and slow-to-move stock while the other can disappoint customers and erode customer loyalty. The reality is that most companies will find themselves shifting between the two to accommodate swiftly changing demands.
“The world and the US economy are facing a supply chain crisis. Disruptions are inevitable. Business owners can not control all unknown parameters, but they can be better prepared. Supply chain financing plays a crucial role in these preparations. Using technology can help better estimate risks, reduce disruptions, and to build supply chain resilience is a necessity in a rapidly changing world, ”said David Paluy, CTO at Quartix, an SCF software startup.
Moreover, the last few years have seen a rise in omnichannel, fundamentally changing the assumed dynamics of how customers engage with a brand and make purchases. Legacy brands are now using their resources to reach customers directly while smaller businesses and start-ups are forming multi-channel partnerships with major retailers.
The takeaway is that our current supply chain solutions are now outdated. During the last three years of the pandemic, these became highly visible in the form of manufacturing delays, transportation shortages, and backups at delivery ports.
With SCF solutions, buyers are better equipped to take on supply without the immediate burden of payment, providing them with a certain flexibility to adjust to a changing market. Sellers are protected from a buyer’s assumptions by securing a quick payment from a third-party intermediary. This enables sellers and manufacturers to continue their operations more smoothly while providing a financial buffer zone to the buyer. It creates a win-win dynamic that helps curtail certain disruptions due to market dependency or a lack of liquidity.
In today’s market, customers are more willing to share valuable data if it means receiving better services and experiences. This helps companies focus on personalization that can help build a lasting relationship with their customer. SCF solutions can be integrated with customer data to further improve end-to-end delivery, increase transparency, and engage customers by appealing to their values.
SCFs competitive edge
The unique advantage of SCF is that companies of all sizes can take part in its benefits. Smaller, or micro-companies, that lack large assets or do not yet have established credit, can track historical data on their ecommerce platforms to determine the real market demand for a product while tracking trends. This data can be used as a security by platform-backed finance companies to justify providing a loan to a buyer.
The accessibility of SCF solutions to companies of different sizes helps to encourage adoption and increases market competition among financiers. This helps to stabilize the industry and puts buyers and sellers across the globe on the same page.
Challenges SCF is solving
SCF solutions are designed to support the entire supply chain. They accelerate payments and free up capital through agile innovations that connect buyers and sellers globally. This creates a unique collaborative process that sets it apart from invoice finance.
- It enables buyers to build a more sustainable and diversified supply chain by easily establishing trustworthy relationships with sellers.
- It allows both buyers and sellers to have access to liquidity and working capital to ensure smoother operations, minimize disruptions, and boost market agility.
- SCF solutions can help companies manage the entire end-to-end supply chain by localizing the process into one central platform. Market competition from financial institutions will ensure UIs that are easy to manage and highly scalable.
- It can allow for faster supplier onboarding, improve efficiency, and help companies diversify their suppliers to ensure that stock does not dry up.
- Using trusted financial institutions also provides a level of certain security to the supply chain. Major financiers can provide state-of-the-art payment solutions that support a wide array of currencies across many countries.
The outlook for SCF
SCF is here to stay. The benefits it provides help meet the needs of modern supply and demand challenges. As these solutions become more common, one important challenge will be to develop global regulation solutions that protect the integrity of all parties.