How Do Finance And Supply Chain Work Together?

Most financial experts and business analysts suggest entrepreneurs to optimise their supply chain and prioritise their management to resolve a financial crisis and vice versa. Hence, it can be gathered that finance and supply chain work together, and strategies built around one impacts the other significantly.

To understand how supply chain and finance work together, one needs to get a close look at their roles in general. Once you know their distinct role, you can reach out to KredX to avail cash flow solutions and eliminate working capital problems, resulting due to lag in the supply chain. 

">What Is Supply Chain?

The supply chain is essentially a network between a firm and its suppliers. This extensive network comprises several activities, producers, vendors, resources, warehouses, retailers, and flow of information.

The primary function of a supply chain involves the following –

  • Production of goods
  • Marketing goods
  • Operational activities
  • Distributions
  • Finance and customer services

In other words, it can be said that the function of a supply chain begins from receiving a product to delivering the end product to customers. However, adequate access to funds helps businesses to manage and optimise each level of the supply chain. This makes finance a vital component in the entire process. 

Supply Chain And Finance– Their Role In Brief:

Finance is an integral component of any supply chain that helps businesses to align different levels of the suppliers’ chain successfully.

Unfortunately, due to improper managerial strategies concerning supply chain and finance, the supply chain of many small and medium-size businesses fall flat. As a result, it hampers the productivity and profitability of the firm drastically. The direct impact manifests as -overshooting overhead expenses and lag in the production cycle.

In a broader sense, lack of access to immediate funding is noticed in the form of – 

  • Drying working capital
  •  Shortage of raw materials
  •  Un-optimised marketing 
  •  Limited distribution channels 

On the other hand, ineffective supply chain management strategies prove to be useless to align available resources and produce target output, or utilise proper channels of distribution. Collectively, constrained cash flow and unsound strategies, bring down the proficiency and revenue-generating capacity of most businesses. Furthermore, it also hampers the readability with which each unit of the supply chain works in sync.

In such a situation, developing well-rounded supply chain management strategies comes in handy to eliminate the lags in the supply chain. On the other hand, to resolve cash-oriented shortcomings, businesses have the option to avail finance options like business loans or alternative financing avenues like – supplier’s finance. 

In fact, several companies often resort to funding options like – supplier’s credit or supply chain finance to revive the same. Furthermore, such funding options prove useful in bridging the working capital gap and help businesses to maintain a cordial relation with their suppliers.

However, there are other viable funding options like invoice discounting available to companies readily. At KredX, we help businesses by extending immediate access to cash flow solutions online. 

Supply Chain Finance – In Brief:

Supply chain finance is a funding option available to both buyers and suppliers to help them even out working capital related complications. In most cases, it works best when the buyer has a higher credit rating. 

This funding option allows suppliers to sell invoices raised against buyers at a discounted rate. Subsequently, on maturity, the financier chases the customer for payment. Ideally, businesses can raise, as much as, 85% of the invoice value and meet their requirements accordingly.

Such an arrangement helps buyers to arrange credit more readily, whereas it allows suppliers to clear their inventory faster. However, one must note that in this financing arrangement, there are usually 3 parties involved, namely - the buyer, seller, and financier. 

While some companies may not have any problem with involving their customers into this funding set up, most entrepreneurs are often reluctant. It may be because of the fear of losing valuable customers or due to lack of confidentiality related to cash flow problems.

Nevertheless, supply financing is a popular means of infusing cash into the supply chain, which helps to keep it active for a considerable amount of time. Regardless, if businesses prefer confidentiality and control over sales ledger, they may avail invoice discounting services and access funds within 3 working days.

At KredX, you can gain access to funds readily –

  • Without losing control over the sales ledger. 
  • Without involving or losing customers. 

Other than these, we extend our integrated cash flow solutions against easy-to-meet terms of services and simple repayment options.

Finance plays a vital role in the supply chain. Resultantly, it would help to make proper arrangements to ensure quick access to the same, as and when required. Doing so will help facilitate a smooth flow of operations and synchronised performance at each level of the supply chain. Furthermore, to ensure supply chain and finance work in a synchronised manner, make sure to adopt effective managerial strategies and review them every frequently.