Supply Chain Risk: Supplier finance demand rockets
THE demand for supplier finance has rocketed, as Yorkshire firms see the first signs of an upturn in business.
The facility is arranged through the bank for the buyer to offer to its suppliers. For a buyer, this finance can help ensure security of supply by supporting the cash flow of its suppliers and helping that supplier grow with its buyer.
According to Lloyds, as the economy picks up and trade volumes grow for large manufacturers, companies further down the supply chain can find themselves most vulnerable. For the full story and more information, click here.
Simon Banham, head of trade sales at Lloyds, said: “Many have become very lean and don’t have the liquidity to service swelling order books. This is when business failures increase.”
As well as getting paid quicker – improving cash flow – supplier finance often enables the supplier to access finance at a better rate than would be available to it directly, as the terms are based on the strength of the buyer’s balance sheet, therefore also helping to financially lock a supplier in to that buyer.
Deborah Ford, director of trade and supply chain finance at Lloyds, said: “The beauty is it is off balance sheet – a benefit for both the buyer and the supplier.”
Lloyds said the huge benefit compared to invoice financing, is that it is generally cheaper – the supplier only pays for what it takes, with no annual fees. A supplier can also use the product flexibly.
Ford said: “It’s becoming more strategic – not just the cash on the balance sheet but about securing your supply chain.
“It’s great for the economy and supports Cameron’s view of getting money into the middle market.”
In retail, Lloyds said it is working on how supplier finance can reach further down the supply chain from tier one to tiers two and three. Ford said the bank is currently doing a lot of work in agriculture.
