The Benefits: How does SCF Boost Your Profits?
On one of our previous posts, we’ve reviewed the SCF solution. As a quick reminder, it is like providing your vendors optional early payment (for approved invoices), only that it’s not you, the buyer, that actually pays them early.
A CFO or treasurer may ask herself / himself — “Great, so I help my vendors. But what’s in it for me?”
But just before we approach the SCF benefits for a buyer…
What’s the SCF Secret Sauce?
SCF allows vendor you identify as eligible, to collect outstanding invoices immediately once you approved the respective invoices.
Assuming it doesn’t take you too long to approve invoices, your vendors may collect any invoice, at affordable rates, within 5–10 days, no matter if its maturity date is in 30, 60, 90 or even 120 days. This is totally at the vendors’ discretion (100% of the invoice is paid at maturity, unless otherwise requested by the vendor).
However, unlike any existing vendor financing solution, with SCF, you never pay a day too early. Funds to pay vendors early come from a source external to you.
So, what are the SCF benefits that make it a Fortune 500 best practice?
SCF benefits (to You, as the Buyer)
SCF can boost your working capital, ebitda, vendor relations, reducing supply chain risk. We will use a simple diagram:
1. SCF boosts your working capital. Your vendors may now collect any invoice once it was approved, regardless of its maturity date. This bolsters your negotiation power, giving you a powerful avenue to request longer payment terms either immediately, or at the next time you negotiate commercial terms. Paying your vendors later is as effective as factoring your own receivables — without the attached costs and operational headache.
2. SCF boosts your Ebitda. Even if you do not need to stretch vendors payment terms at the moment (who knows what’ll happen next year?), Quartix provides you with a rebate income whenever a vendor gets paid early. Think of it as cash-discounts, without paying cash!
3. SCF boosts your vendor-relations. As a default, vendors subscribed to Quartix get paid 100% of the invoice at maturity, unless they actively request an early payment. There is only an upside, no downside.
4. SCF reduces your supply-chain risk. Vendors that are critical to your operations now have an optional, affordable (non-recourse) tool to finance their business, even if they’re “unbanked” for any reason.
SCF may have a strategic importance to your business financially and operationally.
· It reduces your dependency on costly, committing and operationally heavy credit facilities like factoring, ABL or lines of credit. It is a payable-side solution that is completely controlled by you.
· SCF is the most vendor friendly vendor-finance solution. Your procurement staff will probably appreciate the ability to offer vendors such a flexible tool. SCF may greatly help reduce friction with certain vendors.
Quartix can help estimate your working capital / Ebitda benefits via a benefit analysis that’s tailored to your business.
Quick Wins, No Direct Cost
As the buyer, SCF has very little impact on your operation:
1. Your buying process remains unchanged.
2. You still pay at maturity.
3. No commercial dispute risk (only invoices you’ve already approved are discountable by vendors).
Here’s a breakdown of the resources you would need to allocate, to launch and run Quartix.
Documentation: Quartix’s SCF is unsecured. A five page legal agreement, and you’re done.
Cost: None. No setup fee. No platform fee. No maintenance fee.
Setup / Implementation: If you have a commercial ERP system (even if it’s 20 years old…), implementation would take on average 2–3 weeks. Quartix’s implementation is very light.
Vendor on-boarding: once you identify the relevant vendor population and make introductions to Quartix, Quartix will do the on-boarding and provide vendors with credentials to the system, and any needed on-going support.
Day to day operation: None. Of course, you get access to the ‘buyer portal’, providing you with reports and transparency re vendors activity on the platform.
SCF may Complement Any Existing Solution
Most companies today have cash-discount arrangements with some vendors. Some even have more advanced solutions, like p-cards.
On one of our previous posts, we’ve covered the vendor-finance solutions universe. We’ve shown that all existing solutions require you, the buyer, to pay your vendors early out of your own pocket. This translates to a working capital hit to you, as well as limited coverage of your spend (unless you’re cash rich).
In reality, most buyers with traditional vendor-finance solutions cannot afford to pay early to a high percentage of their vendors. The ‘coverage’ of their vendor universe is limited, which leaves a lot of value on the table for these buyers.
SCF is flexible. It may work in parallel with any existing traditional vendor-finance solution, cover any vendor that isn’t covered by it, and boost your profits at no cost and very little effort
Is my Business Eligible for SCF?
Three criteria may provide a quick yes / no answer to this question:
1. Is your annual sales volume over $75M?
2. Do you have at least 10 key vendors?
3. Is your company creditworthy (since SCF is based on your credit risk).
The reason these questions matter is because SCF is a vendor-finance type of a solution, that needs a minimal procurement volume to move the needle for the buyer. Since SCF relies on the buyer’s credit risk, it is less of a fit to distressed buyers.
Summary
Quartix’s SCF works in the background, providing your vendors affordable, optional, digital invoice finance. It boosts your bottom line, operational efficiency and more, at no cost to you. It requires limited resources.
Quartix is light. It may be launched within several weeks either fully, or on a ‘soft launch’ basis.
If you believe your business is eligible and most of your spend today is uncovered by vendor-finance solutions, let’s schedule a demo!
