In a supply chain, Buyers and Suppliers have the same, but opposing needs when it comes to cash flow. They both want cash: Buyers want to hold cash as long as possible while Suppliers want to collect cash as quickly as possible.
This tension between the competing objectives often slows down the chain, impacting different aspects of trade. Suppliers, especially SMEs operate with minimal cash reserves. Common business payment terms mean that they have to wait for 30-90 days before getting paid. The lack of cash flow disrupts their ability to supply goods and services, stifling business growth. In severe cases, this may even lead to total business failure. In fact, more than 50% of SMEs fail due to Cash Flow issue.
This is where Supply Chain Finance Program comes into the picture. It fills the gap between Suppliers and Buyers. It enables companies to unlock resources trapped in their supply chain. Thus, providing a solution that is win-win for all parties.
The Funder (eg. CapitalBay) in Supplier Chain Finance Programs will pay Suppliers the invoice amount (less any finance charges) shortly after the provision of goods or services. The Funder will then collect the invoice payment from the Buyer at a stipulated time later.
- The Supplier ‘wins’ because they receive early payment on terms that are likely better than what they could get via their own financing arrangement. They also have the benefit of raising capital without any security or collateral.
- The Buyer ‘wins’ because they could pay later without affecting their Suppliers’ cash flow. This also strengthens the Buyers’ supply chain by reducing the risk of disruptions to Suppliers due to cash flow issues.
- The Funder ‘wins’ because they generate revenue from a low-risk financing program.
CapitalBay provides a technology-enabled supply chain finance platform which bring Suppliers, Buyers, and the Funders together in one place. Traditional supply chain finance is a paper-based, labour-intensive industry. This made it a less popular option except for big invoices (over millions). However, with CapitalBay, Malaysia’s supply chain finance industry is moving towards a paperless digitized model, replacing traditional processes with automated transactions. Our reduced back-end cost also allows us to offer faster funding at a lower financing rates.