Reply To: I’m interested in using supply chain financing to finance my trade transactions. How does it work, and what are the benefits and risks associated with this method?

[Diparna Biswas]

Supply chain finance (SCF) is important for connecting buyers and suppliers with financing institutions to reduce financing costs, improve cash flow efficiency, and reduce risks. SCF helps promote global import and export activities by adding flexibility and protection to commercial transactions. PO financing and invoice financing solutions are the most common products used in SCF. Buyers and suppliers are the typical players in SCF, and the buyer’s involvement adds weight to evaluating the supplier’s credit limit. SCF benefits both buyers and suppliers by improving their cash flow management and helps strengthen their business relationship. The financial institution is responsible for due diligence and KYC procedures to minimise risks and charges a commission and fee based on the transaction amount to oversee the financing process.