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How Supply Chain Finance Can Improve Cash Flow for SMEs

How Supply Chain Finance Can Improve Cash Flow for SMEs

Posted: 25th April, 2025
Updated: 25th April, 2025

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Category: Business Loan
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Written by: Shriram Finance
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Reading Time: 3 min

Running a small or medium-sized enterprise (SME) comes with many challenges, one of the biggest being managing cash flow. Without enough cash on hand, even profitable businesses can struggle to cover daily operations, pay suppliers, or invest in growth opportunities.

This is where Supply Chain Finance for SMEs comes in. It helps SMEs improve their cash flow by optimising payment terms between buyers and suppliers. By using financial technology, SCF streamlines processes, reduces costs, and benefits both buyers and suppliers through better liquidity.

In this blog, we will explain how the Supply Chain Finance process works, Supply Chain Financing benefits, and how it improves cash flow to ensure smoother business operations.

What is Supply Chain Finance?

Supply Chain Finance is a financing solution that allows companies to pay their suppliers faster. It involves three parties - the company buying goods, the company supplying goods, and a bank, Non-banking Financial Company (NBFC) or financial institution.

Typically, the supplier sends an invoice to the buyer for the goods delivered. The buyer would normally pay this invoice on a certain due date, like 60 days later. With Supply Chain Finance, the financial institution pays most of the invoices to the supplier much sooner, often within days. This gives the supplier immediate cash. The bank or NBFC then waits for the buyer to pay the full amount on the fixed due date.

So, the supplier gets paid faster, which helps their cash flow to run their business. The buyer can still take their normal 60 days or longer to pay. The financial institution charges a small fee for providing the faster payment service, but it allows business to flow more smoothly between buyer and supplier. This method benefits both sides.

How Supply Chain Finance Improves Cash Flow

Here is how SCF helps in improving cash flow for SMEs:

1. Faster Supplier Payments

Supply Chain Finance allows suppliers, especially SMEs, to get paid faster by a bank, NBFC or financial institution. Typically, SME suppliers have to wait for a few days to receive payments from large corporate buyers. But with SCF, they receive most of the invoice amount from the bank or NBFC within a few working days as per their policies. This greatly improves cash flow for suppliers.

2. Cheaper Financing for SMEs

Getting short-term loans or overdraft facilities can be very expensive for SME suppliers because of high interest rates. On the other hand, Supply Chain Finance provides SME suppliers with much cheaper financing options based on the credit rating of the corporate buyers they supply to.

3. Better Planning & Growth

With accelerated customer payments, SME suppliers have greater clarity and certainty over their cash inflows. This enables better SME financial management planning to cover operating expenses, re-invest in growth and manage budgets more efficiently. They can confidently take on larger orders, expand capacity and hire more talent.

4. Stronger Buyer Relationships

Supply Chain Finance strengthens buyer-supplier relationships as SMEs are assured of timely payment for fulfilled orders. This builds loyalty among SME suppliers to prioritise orders and offer better prices and terms to buyers that have SCF programs. On the other hand, buyers can extend payment terms without straining relationships.

Overall, SCF enables both buyers and SME suppliers to optimise their working capital cycles. Suppliers enjoy faster payments while buyers can extend payment days - a win-win for both. With better cash flow and access to financing, SME suppliers also gain financial stability for growth.

Conclusion

Supply Chain Finance (SCF) is a powerful tool for SMEs to improve cash flow, reduce financing costs, and support business growth. By ensuring faster payments, SMEs can manage daily operations smoothly, invest in new opportunities, and strengthen relationships with buyers.

SCF not only provides cheaper financing based on the buyer’s credit but also helps SMEs reduce the risks of late payments and financial instability. As businesses grow, SCF solutions can easily scale to meet expanding needs. Overall, SCF offers a win-win for both suppliers and buyers, promoting healthier, more efficient supply chains and stronger business partnerships.

FAQs

1. Why is Supply Chain Finance (SCF) important for small and medium-sized enterprises?

Supply Chain Finance (SCF) is important for small and medium-sized enterprises (SMEs) because it helps improve cash flow, allowing suppliers to get paid faster while buyers can extend payment terms. This support ensures smooth business operations, reduces financial stress, strengthens supplier relationships, and provides better access to affordable financing.

2. How can SMEs benefit from supply chain finance solutions?

Supply Chain Finance allows small businesses to access fast, low-cost funding based on invoices owed by their large corporate customers. This improves their cash flow, financial planning ability, and growth capacity while strengthening ties with buyers.

3. How does the Supply Chain Finance process access supply chain finance?

To access Supply Chain Finance, SMEs first deliver goods or services and send invoices to buyers. After the buyer approves the invoice, a financial institution pays the supplier early, usually at a discount. The buyer then repays the financial institution later, allowing both parties to manage cash flow better.

4. How can SMEs apply for Supply Chain Finance programs?

SMEs can apply for Supply Chain Finance programs by contacting banks, NBFCs or specialised SCF providers. They usually need to submit business documents, approved invoices, and buyers' details. Once approved, the financial institution pays the supplier early, and the buyer repays the institution later, improving cash flow for both.

5. Are there specific Supply Chain Finance platforms designed for SMEs?

Yes, some Supply Chain Finance platforms and programs are specifically designed for small and medium enterprises. They facilitate faster invoice payments so that SMEs can gain rapid access to cash to better manage expenses and operations.

6. What are the eligibility requirements for SMEs to use supply chain finance?

To use Supply Chain Finance, SMEs usually need a stable business history, reliable buyers with good credit, and approved invoices. Financial institutions may also require proof of consistent sales, strong supplier-buyer relationships, and proper documentation. Meeting these requirements helps ensure quick approval and smooth financing.

7. How does Supply Chain Finance strengthen relationships between buyers and suppliers?

Supply chain finance allows buyers to extend payment terms to suppliers while providing those suppliers access to affordable, fast financing from banks or NBFCs. This improves supplier cash flows and viability, enabling them to reliably deliver goods/services. It deepens partnerships through financial collaboration.

8. What benefits do buyers gain when SMEs use Supply Chain Finance?

When SME suppliers use Supply Chain Finance, buyers benefit through improved supplier financial health, more resilient and diverse supply bases, and strengthened strategic partnerships. As suppliers worry less about cash flow, they focus more on delivering innovative, quality inputs on time to their buyers.