1. What is supply chain finance?
1.1. Definition of supply chain finance
Supply Chain Finance Supply Chain Finance (SCF) is a financial solution that helps businesses optimize cash flow in the supply chain. Banks or financial institutions support suppliers, manufacturers and distributors by providing flexible capital, helping them shorten payment times, reduce financial pressure and maintain stable business operations.
For example, an importing business can get financing to pay for an order before the goods arrive, allowing the supplier to receive money early and continue production.
1.2. How does supply chain finance work?
- The supplier ships the goods and sends an invoice to the purchasing business.
- The purchasing business confirms the invoice and requests financing from the bank or financial institution.
- The bank pays the supplier early with a certain discount.
- At maturity, the purchasing business repays the amount financed to the bank.
1.3. Benefits of supply chain finance
Supply chain finance offers many financial and operational benefits to businesses, including:
For Buyers
- Extend payment terms while maintaining supplier relationships.
- Improve cash flow by taking advantage of longer payment terms.
- Increase your ability to negotiate with suppliers on prices and contract terms.
For Supplier
- Get paid now instead of waiting for payment due date.
- Reduce liquidity risk, have capital to continue production and expand business.
- Limit bad debt, as payments are guaranteed by the bank.
For banks/financial institutions
- Increase your business funding opportunities with low risk.
- Developing financial ecosystem, expanding business support services.
Benefits of supply chain finance
2. Popular supply chain finance products
2.1. Factoring
Factoring is a financial service in which a bank or financial institution purchases a business's receivables before they are due for payment. This gives the business immediate cash instead of having to wait for customers to pay according to the terms of the contract.
How it works:
- Businesses sell goods/services and issue invoices to customers.
- The business transfers the invoice to the bank or financial institution.
- The bank advances a portion of the invoice value (usually from 70-90%).
- When due, the customer pays in full, the bank pays the remainder after deducting service fees.
For example, a company exporting goods can sell unpaid invoices to a bank to receive immediate payment.
2.2. Invoice Discounting
Businesses use unpaid sales invoices to borrow money from banks. When customers pay the invoices, the business repays the loan.
2.3. Purchase Order Financing
Order financing helps businesses have capital to produce and deliver on time when receiving large orders but lacking financial resources.
How it works:
- Businesses receive orders from customers.
- Businesses apply for order financing at the bank.
- Banks provide capital for businesses to produce and fulfill orders.
- Upon delivery and customer payment, the business refunds the financed amount plus fees/interest.
For example, a manufacturing company receives a large order but lacks capital to purchase raw materials, they can use that contract to borrow money from the bank.
2.4. Supplier Finance
Suppliers can receive early payment from banks for a reasonable fee instead of waiting for customers to pay on time.
2.5. Import and export financing
Trade finance helps businesses import or export goods without needing capital up front.
Popular forms of funding:
- Letter of Credit (LC): The bank guarantees payment to the supplier when the contract conditions are met.
- Payment guarantee: The bank commits to pay if the business fails to fulfill its obligations.
- Pre-export financing: Banks provide capital for businesses to produce goods for export.
For example:
A business importing machinery from Europe can use a letter of credit (LC) to ensure that the supplier receives payment when the goods are delivered in accordance with standards. This saves the importer from having to pay for the entire order in advance.
Popular supply chain finance products
3. Supply chain finance in Vietnam
3.1. Supply chain finance situation in Vietnam
In Vietnam, supply chain finance is growing strongly with the participation of banks, financial institutions and fintech companies.
Development trend:
- More and more small and medium-sized businesses are accessing supply chain finance to solve cash flow problems.
- Major banks such as Vietcombank, BIDV, VietinBank offer many flexible financing packages.
- Fintech companies are entering the market, helping businesses access capital faster.
3.2. Banks providing supply chain finance
Many major banks in Vietnam offer financing packages for businesses, such as:
- Vietcombank, BIDV, VietinBank: Support business credit, factoring and order financing.
- Techcombank, TPBank: Providing digital technology-based supply chain financing solutions.
3.3. The role of fintech in supply chain finance
In addition to banks, fintech companies also provide more flexible financial solutions, helping businesses access capital quickly.
Some prominent fintech platforms supporting supply chain financing in Vietnam include:
- LiveTrade: Applying technology helps businesses access finance easily.
- Finhay, Tima: Financial platforms supporting small and medium enterprises.
Supply Chain Finance Situation in Vietnam
4. Notes when using supply chain finance
4.1. Choose a reputable financial partner
Businesses should choose reputable banks or financial institutions to avoid legal and financial risks.
4.2. Assessment of funding costs
Financing options often come with service fees, interest rates, or discounts. Businesses need to consider carefully to optimize benefits.
4.3. Effective cash flow management
Although supply chain finance helps optimize cash flow, businesses still need to control spending appropriately to avoid over-dependence.
4.4. Read the contract terms carefully
Before signing, businesses need to clearly understand the terms of payment time, interest rates and related fees to avoid future problems.
Supply chain finance plays an important role in helping businesses optimize cash flow, maintain production operations and improve competitiveness.
In short, supply chain finance is an effective financial solution that helps businesses optimize cash flow, reduce liquidity pressure and improve competitiveness. With support from banks and financial institutions, businesses can access more flexible capital sources, ensuring the supply chain operates smoothly. In addition, if you are interested in modern financial solutions, especially in the investment field, LiveTrade Pro is a worthy choice, helping you access the stock market more easily and effectively.
