Arrangements For Supply Chain Financing
Currently, most examples of this type of arrangement are programs that have been established by major multi-national companies partnering with large financial institutions (banks). The bank carves out a portion of the customer’s approved credit facility and sets up a “Payables Financing” program in order to secure discounts from the suppliers in return for quick payment. These programs work when two situations hold true:
- The “Large Buyer” has significant credit strength and borrowing power and can carve out this portion of their facility without any negative affect on their day-to-day cash flow.
- The discounts being secured are greater than the cost of borrowing and implementation of the program