Let’s assume that ‘A’ buys goods from supplier ‘Z’ . Y supplies the goods and sends the invoice to ‘A’. Then ‘A’ approves the payment on terms of 30, 60 or 90 days. If ‘Z’ requires payment before the defined time duration, then ‘Z’ or supplier may request immediate payment for the approved invoice from A’s financial firm. The immediate cash required by supplier has to be on discount. Further, A’s financial firm will remit the invoiced amount to ‘Z’ the supplier.
Also Read: How to Get collateral Free Working Capital Loans?
Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs
Benefits of Supply Chain Finance
| Supplier |
Manufacturer |
Dealer |
| Increases cash flow |
Minimizes investment in working capital |
Offers working capital for the purchase of inventory |
| Provides post-shipment financing |
Reduces Cost of Goods Sold (COGS) |
Lower cost of funds than other working capital products |
| Early payment reduces financial dependence on the buyer |
Automation reduces administration cost |
Improves financial discipline due to short duration |
| Reduces the cost of capital by leveraging buyer’s credit rating |
Reduces total cost of borrowing |
Automation decreases administration cost |
Banks and NBFCs that offer Supply Chain Finance include Bank of Baroda , State Bank of India , Punjab National Bank , Indusind bank , ICICI bank , Lendingkart finance , Capital float and many more.
Focus markets or sectors that largely prefer this financial instrument are agro, FMCG, commodities, electrical, electronics and consumer durables.
Types of trading services offered under Supply Chain Finance are as follows:
- Letter of Credit
- Export and Import bills for collections
- Export Letter of credit advising
- Import and Invoice financing
- LC checking, negotiation, confirmation and safekeeping
- Performance bonds
- Pre-shipment export finance
- Shipping guarantees
Instruments of Supply Chain Finance
Reverse Factoring: This financial instrument permits sellers to sell their drafts relating to a specific buyer to a bank at a discount, instantly after they are approved by buyer
Inventory finance : It allows seller to hold goods in a warehouse for buyer till the time goods are not required.
Purchase order: This is basically an order that is available to the seller based on a purchase order received from a buyer.
Must Read: How to Apply For Small Business Loan
SBI Supply Chain Finance
SBI has added a financial feature to its range of products that is supply chain finance for the benefit and convenience of its customers. Supply chain finance will add strength in financing supply chain partners with the help of SBI. SBI has launched an online platform for providing funding support to supply chain partners of renowned and established corporate enterprises.
SBI provides financing services through its two products, such as Electronic Vendor Financing Scheme (e-VFS) and Electronic Dealer Financing Scheme (e-DFS).
This platform can be accessed via its online portal: https://scfu.onlinesbi.com/vfim/login.htm
Benefits of Online platform:
- Offers online and paperless banking
- Offers hassle-free paperless online banking service
- Customization as per business requirements is possible
- Platform is integrated with Corporate Enterprise Resource Planning Software (ERP)/SAP
Types of Supply Chain Finance Products offered by SBI:
Electronic Vendor Financing Scheme (e-VFS): The buyers can easily upload the details of invoices raised by their respective vendors on SBI’s online platform which results in instant credit to the vendor account.
Electronic Dealer Financing Scheme (e-DFS): Sellers make online requests to SBI’s online platform for debiting dealers’ accounts by providing details of invoices raised on their respective dealers that result in immediate credit to the corporate seller’s account.
