SCM Finance
dFarm has integrated Supply Chain Finance (SCF) to optimize cash flow by allowing buyers to extend payment terms to their suppliers while giving suppliers the option to receive early payments. This process is facilitated through a third-party financial institution that pays the supplier on behalf of the buyer.
Supply chain finance (SCF) is a set of technology-based solutions that optimize cash flow by allowing businesses to extend payment terms to their suppliers while providing the option for suppliers to get paid early. This is done through a third-party financial institution or platform that pays the supplier on behalf of the buyer.
Key Components of Supply Chain Finance
Buyer
The buyer in SCF acts as a key facilitator, improving liquidity and financial stability across the supply chain while also benefiting from better working capital management.
Supplier
Suppliers are the primary beneficiaries of supply chain finance, as they gain immediate access to invoice payments. This accelerates their cash flow, significantly improving financial health, liquidity, and stability.
Financier
Financiers, such as banks and NBFCs, act as catalysts in supply chain finance by providing financing through dFarm, streamlining the supply chain funding process and reducing complexities.
Buyer
The company that purchases goods or services from suppliers.
Supplier
The company or entity that provides goods or services to the buyer.
Financier
A financial institution or platform that provides early payment to the supplier on behalf of the buyer.
How Supply Chain Finance Works
Order and Delivery
The buyer places an order with the supplier through the dFarm Marketplace. The supplier then fulfills the order, delivering the requested goods or services. The entire process, from order placement to delivery, is tracked and managed through the dFarm platform.
Invoice Submission
After dFarm evaluates the purchase order, the supplier delivers the goods to the buyer and submits an invoice to dFarm, along with the delivery note or challan.
Approval
dFarm reviews and approves the supplier’s invoice, confirming that the goods have been received as expected. Once validated, dFarm generates an invoice for the buyer.
Financing Option
Once the invoice is approved by the buyer, dFarm’s Supply Chain Finance team collaborates with financial institutions to secure funding, ensuring prompt payment to the supplier.
Payment Terms
The buyer’s payment terms, outlined in the smart contracts, are backed by insurance. The buyer is required to pay the invoice to dFarm before the due date to settle the obligation with the financier.
Order and Delivery
The buyer submits an order to the supplier, who then fulfills and delivers the requested goods or services.
Invoice Submission
After delivery, the supplier issues an invoice to the buyer for the goods or services provided.
Approval
dFarm reviews and approves the invoice, confirming that the goods or services have been received as expected.
Financing Option
Once the invoice is approved and payment is received from the financial institution, dFarm will promptly disburse the payment to the supplier.
Payment Terms
Once the buyer pays dFarm the full invoice amount on the original due date, as per the agreed payment terms, dFarm will then remit the payment to the financial institution.
Benefits for buyers in supply chain financing
Key benefits for buyers and suppliers in supply chain financing
For Buyers
- Improved Cash Flow: Buyers can extend their payment terms without straining supplier relationships, allowing them to better manage their cash flow and working capital.
- Strengthened Supplier Relationships: By offering suppliers access to early payment options, buyers can help ensure the financial stability of their suppliers, leading to more reliable and consistent supply chains.
- Cost Efficiency: Supply chain financing often comes with lower costs compared to traditional borrowing, as the financing is based on the buyer’s creditworthiness rather than the supplier’s, leading to more favorable rates.
- Enhanced Negotiation Power: Buyers may be able to negotiate better terms or discounts with suppliers in exchange for offering early payment options through supply chain financing.
- Risk Mitigation: With insurance-backed smart contracts and financial institution involvement, buyers can reduce the risk associated with payment defaults and ensure smooth transaction settlements.
- Operational Efficiency: Automating payment processes through platforms like dFarm reduces administrative burdens, streamlines operations, and ensures timely settlements with suppliers.
For Suppliers
- Faster Access to Funds: Suppliers can receive payment more quickly than waiting for the standard payment terms, improving their cash flow and reducing the need for external borrowing.
- Improved Liquidity: Early payment options help suppliers maintain liquidity, enabling them to invest in their business operations, purchase inventory, or manage other financial needs.
- Reduced Financial Stress: Access to prompt payments can alleviate financial stress and improve overall financial stability for suppliers, allowing them to focus on growth and operational efficiency.
- Strengthened Buyer Relationships: By participating in supply chain financing programs, suppliers can strengthen relationships with buyers who are committed to their financial health and stability.
- Better Terms and Rates: Suppliers may benefit from favorable financing terms and rates that are often more competitive than traditional financing options, thanks to the buyer’s stronger credit profile.
- Predictable Cash Flow: Early payment options provide greater predictability in cash flow, helping suppliers better plan and manage their financial activities.
- Streamlined Processes: Automated financing platforms reduce administrative work related to invoicing and payment processing, leading to greater efficiency.
Key benefits for suppliers in supply chain financing
- Faster Access to Funds: Suppliers can receive payment more quickly than waiting for the standard payment terms, improving their cash flow and reducing the need for external borrowing.
- Improved Liquidity: Early payment options help suppliers maintain liquidity, enabling them to invest in their business operations, purchase inventory, or manage other financial needs.
- Reduced Financial Stress: Access to prompt payments can alleviate financial stress and improve overall financial stability for suppliers, allowing them to focus on growth and operational efficiency.
- Strengthened Buyer Relationships: By participating in supply chain financing programs, suppliers can strengthen relationships with buyers who are committed to their financial health and stability.
- Better Terms and Rates: Suppliers may benefit from favorable financing terms and rates that are often more competitive than traditional financing options, thanks to the buyer’s stronger credit profile.
- Predictable Cash Flow: Early payment options provide greater predictability in cash flow, helping suppliers better plan and manage their financial activities.
- Streamlined Processes: Automated financing platforms reduce administrative work related to invoicing and payment processing, leading to greater efficiency and fewer errors.
By implementing supply chain finance, agribusinesses can enhance financial stability, improve supplier relationships, and ensure a more resilient and efficient supply chain.
