Payable financing is one of the credit options that is directed towards businesses and helps them raise funds as and when required. Like any other funding option, payable finance accompanies a set of features and benefits, which allow enterprises to gauge its usefulness and limitations better.
Fundamentally, payable financing is a buyer-led supply chain financing programme. With the help of this technique, vendors of a corporate or organisation can raise funds through unpaid invoices/accounts receivables.
It enables businesses to provide funds to their suppliers by offering discounts on receivables before the due date. This financing option is also referred to as – trade credit, vendor financing and supplier finance, among others.
There are 3 distinct parties involved in a payable financing arrangement, namely –
Generally, when a business receives products/services, they have around 30-90 days to pay their vendors or suppliers. Businesses who are vendors to large corporations can avail the option to raise funds via payable financing.
Under this financing programme, suppliers sell their accounts receivables and get an early but discounted payout from a finance provider. The creditworthiness of buyers plays an essential role in this financing option as financiers factor in the same to provide funds without recourse to the supplier (seller).
As per this arrangement, the buyer (business/corporate) pays the outstanding principal amount to the financier on maturity. Typically, payable finance services are availed by large corporate, medium-sized buyers and non-investment-grade buyers.
The most noteworthy features include –
The payable financing option is a discreet funding option. By ensuring on-time payouts, it helps to optimise operational activities of both buyer and supplier.
These are the significant benefits of payable financing –
Nonetheless, the funding option has its limitations too. It proves challenging for start-ups to obtain this financing option and requires the concerned parties to go through a lengthy documentation process.
Accounts payable is a crucial component as funds are raised against it.
Funds are raised against accounts receivable.
It helps to pay accounts payable early at a discounted rate.
It helps businesses to receive advance payment against their accounts receivable.
The financier is responsible for collecting outstanding accounts payable.
Businesses are responsible for collecting outstanding invoices.
Buyer, supplier and financier
Seller and financier.
There is not such confidentiality as both the buyer and seller are a part of this arrangement.
It is usually confidential, as the corporate is seldom aware of the arrangement.
As an alternative for maintaining working capital, suppliers may choose invoice discounting services from KredX and shorten the working capital cycle successfully. Such funding options help businesses raise funds within 24 to 72 hours* at attractive terms of service and simple requirements.