Adequate financing is essential to ensure that each link of the supply chain connects smoothly with the next – all the way from raw materials to the end consumer. As a result, there is a growing realisation that treasury should be involved in the strategic decisions relating to supply chain decision making, with more than half of the survey respondents saying that treasurers play a leading role.
By far the most popular funding programmes for supply chains are pre-existing working capital and traditional trade finance. The problem with using working capital in the current challenging environment is that it has become a strategic resource that companies want to protect. Companies are therefore looking for alternative supply chain funding such as inventory financing, pre-shipment financing, receivables and payables financing.
Receivables financing for example, is a popular supply chain finance product that allows the company to borrow money against an expected payment. Purchase order finance provides funding for businesses with purchase orders to pay their suppliers and smooth out cash flow. While distributor finance is when a treasurer is able to extend finance to local distributors to cover the liquidity gap that arises after goods are sold and receivables are not yet paid.
All of these products are well-suited to the current environment, as they are forms of finance that provide the necessary funding to ensure that each link in the supply chain smoothly proceeds to the next. And they all do so in way that does not negatively affect cash reserves, which have taken an extra level of importance during the pandemic.
A global bank with a long history financing global trade is able to offer these specialist supply chain services, because it will understand the specific needs of treasurers who are managing complex supply chains that spread across multiple geographies. Industry knowledge like this means that banking is more than about financing, it also a way for a treasurer to get actionable information that informs their choices.