The Process: How does SCF work?
On our previous post, we established the difference between Supply Chain Finance (SCF) and traditional vendor-finance solutions like cash-discounts or p-cards. But — how exactly does SCF work?
In our previous post, we discussed the difference between Supply Chain Finance (SCF) and traditional vendor-finance solutions like cash discounts or p-cards. Now let's dive into how SCF works. This post will cover the SCF operational process from your standpoint as a buyer and from your vendor's perspective, highlighting the changes compared to today's processes.
SCF Process — Overview
The SCF process enables your vendors to accelerate any invoices that you have approved. We have already outlined your benefits in a different blog post (also available on our website - check out this page!). The key point is that you never pay early. The process involves four stages:
Stage 1: You receive & approve vendor invoices
SCF does not alter the way you receive or approve invoices from your vendors. Receiving invoices from your vendors and approving them in your ERP system continue to happen as they do today. Quartix monitors your ERP system, either through ERP integration or without it, to detect recently approved invoices for vendors participating in the SCF program.
Stage 2: Early payment offers are sent to your vendors
Once a new invoice is approved for a participating vendor, Quartix sends them an early payment offer. The offers are accessible through the Quartix app and are also sent to vendors via email.
Stage 3: Your vendors accept/ignore the offers
Upon receiving an offer from Quartix, your vendors have three options:
1. Accepting the offer and receiving funding from Quartix.
2. Ignoring the offer completely.
3. Ignoring the offer for now but accepting it at a later date (anytime until the invoice reaches maturity).
If the vendor chooses to accept the offer, either immediately or later, Quartix funds the payment within 1-2 days, providing the full invoice amount minus the acceleration fee.
Stage 4: You pay out the invoice when it is due
Regardless of whether a vendor received early payment from Quartix or not, you never pay early. You always pay the invoice on its scheduled maturity date. If the vendor accepted Quartix's offer and accelerated the payment, you will pay Quartix once the invoice reaches maturity. Otherwise, you will pay your vendor directly when the invoice is due, just as you would today.
These four stages are summarized in the following diagram:
As shown, there is no day-to-day operation or maintenance required from you as the buyer. You continue to receive invoices, approve them, and pay them as you currently do. Quartix acts as an add-on to your existing processes, enabling your preferred vendors to receive early payment when they choose to, without requiring you to pay early.
This streamlined process ensures efficient cash flow management for both you and your vendors, improving your supply chain relationships and optimizing financial performance.
One of SCF's main benefits for you as the buyer is the ability to negotiate longer / extended payment terms with your vendors, using SCF as a 'sweetener' or bargaining chip to lower vendor friction / resistance during negotiations. Once you successfully negotiate longer payment terms with a vendor, nothing changes in the process above apart from the fact that moving forward, you'll be paying this vendor's invoices at the newly extended payment terms (i.e., on day 90 instead of on day 60, in case you extended payment terms from Net60 to Net90 with that vendor). This flexibility allows you to better manage your working capital and optimize cash flow while maintaining strong relationships with your vendors.