Empowering SMEs: Navigating Supply Chain Financing with LendFoundry’s Seamless Solutions

SMEs are the backbone and drivers of any nation's economic growth and social development. But to strengthen this backbone, it’s imperative to remove their obstacles to growth. Most of the time, these barriers are created because they struggle to access finance from traditional financial institutions like banks.

Here is where Supply Chain Financing or Invoice Discounting (SCF) comes into play. It is a new-age financial tool designed to optimize cash flow and working capital within a supply chain. SCF enables SMEs to enhance their working capital efficiency, scale up operations, and effectively fulfill customer and market demands.

LendFoundry, with its offerings and seamless integrations between them, is at the forefront of this technology-powered SME financing revolution. Let’s delve into this article and explore how LendFoundry’s products enable lenders to set up and use this tool seamlessly for their customers and manage day-to-day SCF lending operations smoothly.

 

SCF vs Business Loans

Supply chain financing loans are a subset of business loans with a certain unique set of features as below:

  1. Unlike traditional business loans, where we generally have two main entities - borrower and lender, in Supply Chain Finance we have three entities - buyer, seller, and financer/lender.  
  2. SCF is a financing option that allows suppliers to receive early payment on their invoices from buyers by leveraging the buyer's strong credit rating. Hence, it is easier to get finance as compared to traditional lending as it is based on the creditworthiness of the buyer and their ability to pay.
  3. For the above reason, SCF also provides access to cheaper funding compared to traditional lending as the risk is shared across the supply chain. 
  4. SCF also offers flexibility in repayment terms as the repayment schedule is tied to the payment cycle of the buyer, thereby reducing the financial burden on the supplier.
  5. Conventional lending requires a lengthy process for applying and approving loans. In SCF the buyer does not have to be underwritten for each invoice.

 

Growth of the market

The COVID-19 crisis has shown why credit access is a serious and ongoing problem for SMEs. Most SMEs still struggle to access much-needed low-cost financing from traditional lenders since lenders don’t feel confident about lending to SMEs because of the lack of proper documents/proofs. 

The global supply chain finance market was valued at $6 billion in 2021 and is projected to reach $13.4 billion by 2031, growing at a CAGR of 8.8% from 2022 to 2031 - Allied Market Research

Supply chain finance is experiencing momentum in the Asia-Pacific region due to a rise in instances of market abuse and fraud, alongside the growing challenges of meeting regulatory compliance in banks and financial institutions. In 2022, Asia-Pacific emerged as the leading region in the supply chain finance market. North America is projected to be the fastest-growing region in the anticipated period ahead.

 

Challenges to manage SCF Lifecycle

Managing the lifecycle of Supply Chain Finance comes with various challenges. Some of these include:

  1. Complexity in Collaboration: Coordinating between multiple parties involved in the supply chain (suppliers, buyers, financiers) and aligning their interests and expectations can be intricate.
  2. Regulatory Compliance: Adhering to diverse and evolving regulations in different regions can be complex, requiring constant monitoring and adjustments to ensure compliance.
  3. Risk Management: Identifying and mitigating risks associated with supply chain finance, such as default by suppliers or financial instability, is crucial for a stable and secure operation.
  4. Supplier Relationship Management: Maintaining positive relationships with suppliers while managing the financial aspects of the supply chain can be delicate. Effective communication and collaboration are key to addressing this challenge.
  5. Supply Chain Disruptions: Dealing with unexpected disruptions, such as natural disasters, geopolitical tensions, or global pandemics, requires agile responses to maintain continuity in the supply chain finance operations.

Effectively addressing these challenges involves strategic planning, technology investment, regulatory awareness, and ongoing collaboration with key stakeholders in the supply chain.

 

How LendFoundry provides the tools to originate a SCF request

LendFoundry represents a completely digitized and user-centric SCF platform, revolutionizing lending approaches for SMEs. It facilitates a seamless connection between anchors and buyers, enabling supply chain financing. 

With LendFoundry's digitized onboarding process, SMEs or their buyers simply need to upload their sales or purchase invoices. The following features in LendFoundry’s Loan Origination System facilitate SCF request onboarding:

  1. Integration Capabilities: Capable of integrating with existing systems (ERP, CRM software) used by buyers and suppliers for smooth data exchange and interoperability
  2. Supplier/Buyer Onboarding
    1. New supplier/buyer onboarding - using self-service portals or APIs
  3. Invoice Management
    1. Upload invoices - via APIs/Portals
    2. Invoice validation by the buyer
    3. Invoice workflow governed by statuses 
  4. Supplier - Buyer Management
    1. Summarized view of all invoices for a supplier-buyer combination
    2. Managing Credit Line and its Limits (Max, Approved, Available) for both revolving/non-revolving types for a supplier-buyer combination
    3. History of buyer payments from this supplier on previous invoices
  5. Generation of offer based on Purchase Order
    1. With or without Holdback
    2. With or without Subvention
    3. Zero or non-zero interest rate 
  6. Event-based notifications on email and mobile

 

How LendFoundry provides the tools to manage an SCF

LendFoundry's servicing platform streamlines supply chain financing by seamlessly handling fund disbursement to suppliers and tracking payments. It is capable of integrating crucial Supply Chain Data, encompassing details about suppliers, buyers, invoices, and payment timelines, facilitating an efficient process.

Some of the salient features are:

  1. Seamless onboarding of approved invoices from the origination system 
  2. Funding of an invoice - Disbursement of the funds with adjustment of fees 
  3. Invoice Details
    1. Invoice level details
    2. Buyer-level view of all invoices (to the same supplier or across suppliers) - payment history, Available Limit/Balance, outstanding/arrears summary
  4. Supplier- Buyer Management
    1. Modify Limits (Max/Approved etc)
    2. Bulk payments against multiple invoices of the same borrower
  5. Payment processing 
    1. Via ACH/payment processor 
  6. Delinquency Management 
    1. Pause auto-pay/accrual 
    2. Modify/restructure loan 
    3. Hold the line (no more new invoice approval) 
  7. Pay-off discounts on early pay-offs
  8. Alerts/reminders on critical events on email/mobile
  9. Event-driven Statement of Account and Loan Closure document generation
  10. Dashboards and BI Reports for a 360-degree view of the financial supply chain ecosystem

 

Conclusion

Supply Chain Financing offerings can optimize cash flows, minimize payment lags, and bolster connections between purchasers and suppliers. They hold growing significance in contemporary supply chains, where operational efficiency and accessible funds are pivotal in achieving business prosperity.

  • January 3, 2024

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