Explore by Topic
Explore by Type
C2FO Powers Early Payment Programs for the World’s Largest Companies.
Discover expert insights on working capital, cash flow optimization, supply chain management and more.
We believe all businesses can and should have equitable access to low-cost, convenient capital to grow and thrive.
Emerging supply chain finance solutions are giving leading manufacturers an effective way to strengthen supplier relationships and thrive amid disruptions.
Between the COVID-19 pandemic, geopolitical conflict, climate hazards and economic disruptions, manufacturing supply chains have faced their fair share of challenges since 2020, making supply chain resilience of increasing importance.
Manufacturers continue to experience critical materials shortages and logistics backlogs — issues that are compounded by economic uncertainty and inflation. A 2023 report by Deloitte found that nearly 3 out of 4 manufacturing executives point to material scarcity and supply chain disruptions as the industry’s biggest near-future uncertainties. To address these concerns, leading manufacturers have emerged with some key priorities:
Supply chain financing (SCF), which uses technology to finance early invoice payments to suppliers, has gained popularity as a way to address widespread disruptions. Between 2020 and 2021, supply chain financing volumes increased by 38% worldwide.
When used effectively, supply chain financing is a win-win strategy that improves cash flow for both buyers and suppliers. As a result, manufacturers can free up the cash needed to make growth investments and navigate an economic crisis. When both parties benefit from a supply chain financing program, manufacturers also establish stronger supplier relations and boost supply chain resilience.
As a leading manufacturer, what supply chain financing strategies can you use to enable success?
Traditionally, enterprises rely on single bank-led supply chain financing programs to fund early payments to suppliers. However, this has potential drawbacks. Buyers may see low supplier participation, particularly with small to midsize suppliers. These businesses are often unable to participate due to existing financing agreements, resource-intensive onboarding, restrictive terms and high costs. Secondly, bank-led supply chain financing is vulnerable to economic volatility. When interest rates rise, banks may cancel programs to reduce risk.
More modern SCF solutions are offered by fintech companies, providing an alternative to single-bank programs for funding invoice payments. For example, C2FO’s Dynamic Supplier Finance has flexible funding options, so you can choose between funding early supplier payments either through your funds or through a third-party funding network.
Self-funding early payment in exchange for a discount allows you to reduce costs, increase cash returns, and improve metrics such as EBITDA and gross margins. However, you may opt to fund early payment through third parties to preserve working capital access without impacting your suppliers’ cash flows. This option may be needed during an economic slowdown or sudden drop in revenue if you need to hold on to cash longer.
Additionally, C2FO’s Dynamic Supplier Finance is easy to use. Suppliers can decide which invoices to accelerate and at what cost — factors that are usually out of their control with traditional SCF programmes. For manufacturers, this means higher supplier participation and a stronger, well-funded supply chain.
Supply chain financing aims to retain working capital while maintaining the strength of your supply chain. However, SCF also offers opportunities to improve your profit margins.
When suppliers receive early payments, they can build the cash flow needed to sustainably operate, grow and address your demand for goods and services — whether that means increased purchase order volumes or R&D for a competitive product offering. With healthy working capital, suppliers may be more willing to negotiate lower prices with you, improving your profit margins.
Flexible funding solutions — those that allow you to fund early payment either through your balance sheet or through other lenders — can help you further improve margins. When funding early payment yourself, you receive a direct discount from suppliers, lowering the cost of goods sold (COGS). Over time, this can significantly reduce COGS and raise gross profits. Because you decide when and how to fund early payment, you can also make more strategic financial decisions that support your bottom line.
Across the board, manufacturers are prioritizing stronger supplier relationships and coordination to address challenges such as inflation and supply chain disruptions. Investing in strategic supplier relationships not only helps you deliver goods on time and in full — it also helps them coordinate disruption workarounds more effectively and it can even facilitate innovation.
Supply chain finance can strengthen these relationships by giving suppliers the funding needed to grow. However, this only works if both buyers and suppliers benefit from the agreement and have agency over its terms with no pressure on suppliers to participate.
Modern evolutions of traditional SCF, such as C2FO’s Dynamic Supplier Finance, prevent soured relationships by offering more flexible, win-win terms. Suppliers set acceptable discount rates, ensuring that the cost of early payment is affordable, and decide which invoices to offer for early payment.
As an added benefit, suppliers also have access to C2FO’s extended supplier relationship management team. Unlike traditional, bank-led SCF programs, this supports successful supplier onboarding and gives suppliers the resources needed to fully realize program benefits. This in turn benefits you because higher supplier participation increases returns on SCF programs.
Many enterprises are embracing environmental, social and governance (ESG) initiatives not only to help the planet but also to realize business benefits. More manufacturers are prioritizing ESG as part of their supply chain strategies, with product sustainability considered the biggest trend in customer demand by manufacturing professionals.
ESG initiatives can address changing customer demands, and they can also help you navigate supply chain disruptions. For example, a solar-powered supplier may be able to continue operating when the competition’s power grid is interrupted due to a storm.
Modern SCF programs, such as C2FO’s Dynamic Supplier Finance, are making it easier for companies to address ESG requirements. Here’s how:
Combined, these strategies enable you to optimize working capital for diverse suppliers, meet ESG targets and improve diverse supplier engagement.
Widespread bottlenecks and disruptions have prompted many manufacturers to adopt supply chain financing programs. However, not all SCF agreements are created equal. Traditional SCF programs typically see limited supplier participation, often due to cost restrictions, rigid terms and complex onboarding. According to a 2022 Tungsten Network survey, suppliers are more likely to participate in SCF programs if they have user-friendly portals, allow suppliers to decide which invoices to accelerate and are cost-effective.
Emerging SCF solutions such as C2FO’s Dynamic Supplier Finance address requirements for both parties. Suppliers can view outstanding invoices from the manufacturer through an easy-to-use online portal and decide which ones to accelerate. Suppliers can view outstanding invoices from the manufacturer through an easy-to-use online portal and decide which ones to accelerate. They also set a desired discount rate for early payment, ensuring affordability. If the early payment request is accepted by the manufacturer, the manufacturer can decide whether to fund early payment itself or through third-party lenders.
This has several advantages over single bank-led programmes. It enables you to:
Supply chain financing has helped enterprises weather economic disruptions since the early days of the pandemic, fundamentally changing the way businesses navigate supply chains. Going forward, leading manufacturers can leverage more flexible, dynamic SCF solutions to further strengthen supplier relationships and establish supply chain resilience.
Interested in a dynamic approach to supplier finance? Click here to learn more.
In this article:
Supply chain finance is here to stay, but emerging regulations and fintech options may change how you approach this funding strategy.
Use these three 2024 procurement trends to guide your planning for the coming year.
Subscribe for updates to stay in the loop on working capital financing solutions.
6 min read
5 min read
7 min read