How can supply chain finance increase your margins?

Could paying your suppliers early make you more money?

Do your buyers use payment terms as a negotiation tool?

 

The oldest rule in the business book is still relevant today. 

Profit = Sales – Costs

However, cash held in the business is often seen as a barometer of health and therefore the idea of paying early for products or services to improve margin is not top of the agenda for many Finance Directors.

A new finance program now sees the approved supplier invoice as an asset which can be leveraged.  The supplier who can draw down an early payment can reduce their own finance costs and pass these savings to the buyer.

We are seeing significant early payment discounts being made available across a number of sectors.

Sector Supplier Sector Early Settlement Discount
Retail Shoe Manufacturer 3.5%
  PR and Marketing campaign 5%
  Clothing manufacturer 4.5%
  Packaging 3%
Construction Labour 2.5%
  Reinforcing Steel 5%

Profit Example

Product Unic cost Sold for Profit Gross Margin
Shoes £28.50 £85.60 £57.10 66%
With 5% discount £27.40*  £85.60 £58.20 68%

     *Includes 30 day finance charge

PR Campaign

Product Unic Cost Discount for
early payment
Saving Cost of finance
60 days
TV Advert £650,000 10% £65,000 £17,550
      £17,550  
Total savings £47,450  

We paid the advertising agent on contract signing and our client paid us back 60 days later.

If you are looking to improve your margins, then reviewing supplier payments can be a very simple way to achieve this. There are many buyers who have not had the option to make an early payment to the supplier, however with many new innovative finance products available this is now a reality.

Give your buyers the tools they need to maximise their spending power and make the best returns for your company.

 

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