How Supply Chain Finance works to support underfunded small businesses

How Supply Chain Finance works to support underfunded small businesses

The COVID-19 pandemic crisis has had a profound impact on the US economy in a short space of time, with unemployment rising at a record rate and projections of a 5.2% contraction in GDP. Global lockdowns have introduced weaknesses in vital supply chains and a lack of liquidity has become a critical issue for businesses, as a result. Capital-constrained SMEs in particular are facing an uncertain period, with cash flow and access to finance proving to be major challenges.

However, digital innovation in supply chain finance represents a viable and effective means of streamlining much-needed funding for small businesses during COVID-19 and beyond. With greater adoption of technology in SCF offerings, lenders worldwide have the opportunity to more effectively and more profitably support businesses in need and now has never been a more critical time to do so.

“Globally, SCF is growing dramatically as a means of finance, with McKinsey & Company reporting that there is considerable potential for broader adoption of supply chain finance, with an estimated $2 trillion in readily financeable payables worldwide. In the DACH region alone, our figures show that demand for SCF increased by 28% in the second half of 2019.”

How SCF works to support small businesses

SCF is offered by lenders as a means to allow businesses to simplify their operations and manage risk more effectively by financing supply chain activity. It brings together suppliers, buyers and the banks that fund the process, allowing buyers the opportunity to lengthen their payment terms to suppliers and increase all-important cashflow, while at the same time, giving suppliers payment in advance of the agreed due date of a contract.

Globally, SCF is growing dramatically as a means of finance, with McKinsey & Company reporting that there is considerable potential for broader adoption of supply chain finance, with an estimated $2 trillion in readily financeable payables worldwide. In the DACH region alone, our figures show that demand for SCF increased by 28% in the second half of 2019. With increased demand even before COVID-19, it’s clear that growth is only likely to increase further as businesses look for financial support to weather the current liquidity crisis.

SCF was traditionally seen as a solution for bigger companies with strong and lengthy credit histories, with much of the process manual, time-intensive and paper-based. As such, it was difficult for lenders to assess the viability of smaller businesses, and the process of onboarding buyers and suppliers was slow. However, much like every other sector of the economy, digital technology has disrupted the old and created opportunity for the new.

How SCF platform helps lenders during the current crisis

Working in over 50 countries, HPD LendScape is a world leading secured lending platform that launched an enhanced SCF solution last month, leveraging the latest digital capabilities to support the global supply chains that will help restore international trade and rebuild economies around the globe. As a single platform, LendScape’s new SCF offering provides a clear solution for banks and other lenders looking to support SMEs currently struggling to ease pressure on cash flow, ensuring greater visibility over the process and transparency for all parties involved.

New onboarding capabilities enable a fast and efficient KYC process, such as approval hierarchy, and linking out to external APIs for anti-money laundering checks or document signing – much of which lenders historically completed manually, slowing down the onboarding process.

By enhancing these previously time-consuming and resource-intensive processes, the platform allows lenders to provide struggling SMEs with the liquidity they need - more vital than ever during a crisis that is moving quickly and with no clear end in sight.

In the current crisis, companies, the jobs they create and the economy they support, all need help. This is especially true of the millions of small and growth businesses that are the backbone of the global economy. Innovative, tech-driven funding solutions represent a short-term option to access much-needed cash and improve balance sheets, but the benefits such solutions bring to ensure they will become a part of the fabric of financial services long into the future.

 

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Written by:

Claudia Perri Regional Commercial Director, HPD LendScape

Kevin Day CEO, HPD LendScape