Africa-Press – Eswatini. Many small businesses, and some big businesses are facing challenges with managing their supply chain due to financial problems.
Some of the financial problems are not lack of funds to run the business, but cash flow crisis or liquidity. Small businesses do business with large businesses and due to finance policies of the large businesses, the small businesses face challenges in managing their cash flows.
Big supplier may not easily give credit to SMEs as a result, if the SME fails to get funding from any financial institution, they may have to raise funds to buy their supplies for cash, then they go and supply another big company whose payment terms are 30 days from date of statement.
If the SME is not liquidity enough, they will have to wait for the invoice to be paid in order for them to continue operating.
Without any other source of funding, the SME will not only fail to continue supplying, but also fail to pay operationary costs, which will result in the company suffering financial crisis. In many cases, small businesses manage to do business a few months before they fail to manage the cash flow crisis. Failure to collect from debtors on time is one of the challenges faced by SMEs
Addressing the challenges in financing
As many SMEs fail to get loans from banks, they end up facing financial challenges which result in most of them closing down. The easiest form of credit SMEs can get for them to manage their supply chain is credit from the supplier.
Dealing with one supplier for a long time may qualify your small business for credit, which helps you address your cash flow challenges.
As an SME owner, you have the obligation to ensure that you pay the suppliers as per agreement to avoid extra charges or lose the credit facility. Suppliers will not supply you with large sums of stock at a go, but they can increase your credit after a certain period of time when they see that you are not breaching the payment terms.
Therefore, you must make wise use of the credit facility and not buy more than what you will sell, otherwise you will have stock lying in your store room when the payments are due to the supplier, or even incur losses due to damages or expired goods.
Invoice Financing & Invoice Factoring
In the event that you fail to get credit from the supplier, you can get a loan from your bank or any other financial institution with your customer invoices as collateral.
The financial institution will extend to you a credit to the value of a particular percentage of your sales invoices, say 80 per cent. Supposed you are owed E10 000, and your customer will only pay you at a later date, yet you seriously need funds to continue operating.
The financer may give you a short-term loan of say E8 000, and then when your customer pays, the financer recover their short-term loan and you get the difference.
This is one way SMEs can continue doing business with their suppliers and customers with little cash flow challenges.
It will still be your responsibility to collect payments from your customers
With invoice factoring, you are basically selling your debtors or unpaid invoices to a factor or third party, who will pay you a certain fraction of the debtors or invoices and the invoices become theirs.
The financer will enter into agreement with your customers and the customers pay directly to the financer and they are the ones responsible for collecting the payment.
Secure Market
A secure market helps your business get a loan to pay your suppliers in order to get your stock. Financers will asses your sales agreements or letters of intend with your customers and then look at your purchase orders and they can buy for you the stock which you will supply your customers and when the customers pay, the financer usually recovers the full amount of the loan, or you may have a short-term loan for say six months.
To qualify for this kind of supply chain finance, you need a secure market. This is basically customers who are surely going to do business with you, and pay.
Their credit-worthiness or ability to pay is key to your getting a loan against the market. With no physical assets to use as collateral, your secure market becomes the collateral.
When you carefully manage your supply chain, you can run a very successful business, and failure to manage the supply chain is the fall of your business. The supply chain is generally the movement of your raw materials or stock from your suppliers until they eventually reach your customers.
As a business owner, you need to be a good buyer, negotiate good prices and discounts, good payment terms where possible, getting funding on time to ensure your supplier is paid on time to deliver your merchandise. You do not need to miss the deadline as per your tender agreement of sales agreement because this will affect your credibility with your customers or even delay payments. Bear in mind the supply chain is a process that involves different stakeholders.
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