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Supply chain financial management
'Supply chain management' are words that are increasingly used in the business sector, but there is a new slant on this, which is currently in vogue - 'supply chain financial management' which essentially links together the purchaser, supplier and financier .
Invoice finance factoring and invoice discounting now accounts for such a large percentage of British business funding, particularly in the small to medium-sized sector, that it is taking over from the banks in importance for the day-to-day trading of SME companies across the country.
As a company we have long supported our clients by providing additional finance to help with purchases, as well as providing additional finance against sales invoices.
This linkage between purchasing and financing debtors has been part of the financial scene in the United States for a long time. It is from here that Close Invoice has developed its approach to 'supply chain finance management.' In order for this service to work efficiently there needs to be an effective partnership between the financier and the customer/client.
Retaining customers
Here, at Close, we are proud of the fact that we retain our customers 2_ to 3 times longer than the average for the factoring industry. This enables us to build up genuine partnerships with our clients over a number of years and are therefore in a position to flexible in supporting our client base.
The 'supply chain finance' model requires a company to purchase goods and pay for them within 10 days to obtain a discount. This discount will more than pay for the additional finance costs and also enables the company to achieve a better credit standing and to become a preferred customer for the supplier.
At the other end of the supply chain are the sales invoices, which are issued when the goods are dispatched. Payment is received in advance of the due date, which clearly supports and helps the customer's cashflow.
Whilst factoring and discounting has long been a useful tool to help with one end of the transaction, Close has developed a unique product which is available to those clients where a sound relationship has been established. This partnership provides a 'win-win' scenario for both the client company and Close Invoice Finance.
Providing flexibility
Such a product should become increasingly popular - particularly in the manufacturing arena, where substantial sums of money can be tied up in raw materials and work in progress. With many companies currently struggling in this sector, it is important that a financier can provide flexibility.
Providing finance through the purchase order route is very difficult for most financiers without some tangible security to back up the lending. However, because Close Invoice has an average client life twice the industry average, we are able to be much more supportive as we understand our clients businesses better. This allows us to make a far more informed decision and our knowledge of the management team and business very often allows us to support the potential additional risk.
United States influence
Looking to the future, as a company we will continue to look at our American cousins and their approach to finance. They have developed financing mechanisms that are just not available in the UK.
For example, there was a record company in the USA that wanted to obtain finance by using the future royalties of records for a top pop star. Their financiers looked at how the records were sold at various times of the year and provided an advance of up to 30% of the royalties each quarter, which enabled financing to be available to help with the production of records.
Also, in the USA, it is very interesting to look at the way they finance stock in large departmental stores. This is achieved by looking at two key areas - firstly, the cash taken at the point of sale (which identifies which products are being sold) and secondly, the stock being purchased.
By tracking both these figures over a period of time, it will enable a financier to come up with a sensible financing ratio for the business. There will inevitably be seasonality in purchases - therefore the financier needs to be alert to external factors - such as bad weather - which will effect sales of items primarily sold in the summer season.
Close Invoice's partnership approach is reminiscent of the 'old fashioned bank manager' of 50 years ago, who was close to his customers, understood their businesses and supported them in growing their business.
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