Cash flow is a pressing concern for the majority of business owners. According to a recent survey, 63% of business owners are regularly stressed or suffer from anxiety due to cash flow concerns. We discovered similar conclusions in our SME Growth Index research.

Lack of working capital can also put a strain on trade relationships.

In a typical trade transaction, buyers want extended payment terms, and suppliers want to be paid faster. Capital is tied up in the supply chain until invoices are settled.

The two contrasting needs can result in the supply chain slowing down and a reduction in profit for both parties. The COVID-19 pandemic has exacerbated cash flow shortages and placed further pressure on trade relationships, especially for SMEs. As explained in a recent study published in the Havard Business Review:

“a less visible crisis deep within supply chains that could add to the woes of the global economy – SMEs tend to be the first to feel the effects of financial crises. But their current plight is exacerbated by punitive payment terms that large companies began introducing in the aftermath of the 2008 financial meltdown.”

– Federico Caniato, Antonella Moretto, and James B. Rice, Jr.

Supply chain finance is a financing solution that helps to stabilise trade relationships and meet the contrasting needs of both parties. This is achieved by adding a third-party to trade relationships to help unlock the capital tied up in the supply chain.

What is Supply Chain Finance?

Supply chain finance is a business funding solution designed to help businesses unlock the capital tied up in supply chains. According to McKinsey & Company, the use of supply chain finance could stimulate commerce worldwide by releasing an additional $2 trillion in working capital tied up in supply chains.

Both buyers and suppliers can benefit from the increased liquidity.

The supply chain finance company advances the money owed to the supplier when an invoice is raised so they can get paid faster. The buyer pays the invoice at a later date so that they can take advantage of extended payment terms.

In a typical supply chain finance arrangement, the buyer will have a stronger credit rating than the supplier. This enables the smaller supplier to access finance at more affordable rates than they would be able to negotiate on their own.

How Does Supply Chain Finance Work?
Supply chain finance works by adding a third-party to the transaction between buyers and suppliers. Here’s a simple outline of how the supply chain finance process works.

  1. The supplier raises an invoice to the buyer as they usually would after concluding a commercial transaction.
  2. The buyer approves the invoice for payment and submits it to the supply chain finance company.
  3. The supplier is notified about the receivable by the supply chain finance company.
  4. The supplier can immediately fund the invoice and receive an advance of funds or wait for the invoice to be paid on net terms.
  5. When the invoice is due, the buyer pays the supply chain finance company the full invoice amount. The supplier receives any remaining balance from the supply chain finance company.

Buyers can access extended payment terms without placing financial pressures onto their suppliers. Suppliers can access capital at much lower rates and increase cash flow.

Supply chain finance is also known as reverse factoring. In contrast to a standard invoice factoring facility, the financing is based on the buyer’s financial profile rather than the supplier. This means the supplier can usually access more affordable finance rates than they would factoring their invoices directly.

This type of facility is also typically considered an “off-balance sheet” source of funding. A supply chain funding facility generally won’t impact your ability to qualify for other sources of business finance and can sit alongside your existing loans and funding streams.

Unlocking Working Capital with Supply Chain Finance

Traditional lenders and banks are increasingly risk-averse, making it harder for SMEs to access funding. At the same time, net terms and late payments are a significant concern for Australian businesses. According to the Australian Small Business and Family Enterprise Ombudsman, 53% of invoices are paid late, with 23 days overdue the average for late payments.

Supply chain finance stabilises the supply chain by allowing suppliers to use their outstanding invoices to get paid faster and offering buyers increased payment terms. With capital released from the supply chain, sales cycles can be accelerated, and business goals can be met more quickly.

Businesses from a wide range of sectors can benefit from supply chain finance. According to a PwC study, consumer goods, manufacturing, and transportation are the sectors with the highest levels of supply chain finance adoption:


Supply chain finance takes a holistic view of the supply chain. By adding a third-party to the transaction, the contrasting needs of suppliers and buyers can be met, working capital is unlocked, and growth opportunities can be realised.

The Benefits of Supply Chain Finance

Supply chain finance empowers companies with the liquidity they need to grow. Releasing capital tied up in the supply chain can be transformative for cash-hungry businesses. Long term relationships can be fostered, and the risk of disruption in the supply chain can be mitigated.

Benefits of Supply Chain Finance for Buyers:

  • Boost cash flow through extended payment terms
  • Increase margins by negotiating bulk/buying early payment discounts with suppliers
  • Build stronger relationships with suppliers
  • Reduce the risk of supply chain disruption

Benefits of Supply Chain Finance for Suppliers:

  • Increase working capital
  • Access more favourable finance rates
  • Speed up sales cycles
  • Offer extended payment terms to customers

Suppliers can facilitate new orders and fund the growth of the business. Buyers can take advantage of extended payment terms and increase the reliability of the supply chain. Around a third of buyers have suffered a shortage of critical supplies due to a supplier incapacity in the last two years.

Both parties benefit from this collaborative approach to meet working capital needs.

Supply Chain Finance with ScotPac
Every trade relationship is different, and there is no one-size-fits-all solution when it comes to supply chain finance. You need a funding facility that works for your business and helps you to achieve your unique business goals.

Here at ScotPac, we offer a range of flexible business finance solutions to help unlock the hidden value in your supply chain and assets. We have a team of supply chain finance experts that can help you access the funding you need to overcome cash flow gaps and realise the potential for growth and increased profitability.

Fill in the form below or give us a call to speak to one of our business finance advisors and see how we can structure a funding solution to help your business.