Let's consider an example
of how a supply chain financing could benefit a transport and logistics business:
Imagine a freight brokerage company that acts as an intermediary between shippers and carriers. The company experiences a common challenge in the industry, where shippers typically take longer to pay their invoices while carriers require prompt payment for their services. This creates a cash flow gap for the freight brokerage company, as they need to pay carriers before receiving payment from shippers.
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To address this challenge, the freight brokerage company decides to leverage supply chain financing from Cargo Financing. They approach Cargo Financing to explore options for optimizing their cash flow within the supply chain.
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We have an array of lenders that offer a supply chain financing program that helps bridge the payment gap between the freight brokerage company, shippers, and carriers. Here's how it works:
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Early Payment to Carriers: Lender agrees to provide early payment to carriers on behalf of the freight brokerage company. When carriers complete their services, instead of waiting for the usual payment terms, Cargo Financing disburses the payment to the carriers promptly, ensuring they receive their funds without delay.
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Extended Payment Terms with Shippers: Meanwhile, lender negotiates extended payment terms with the shippers on behalf of the freight brokerage company. This allows the freight brokerage company to extend their payment timeline to shippers while still ensuring carriers receive timely payment.
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Financing the Receivables: To bridge the gap between early payment to carriers and eventual payment from shippers, lender offers financing against the freight brokerage company's receivables. This means that instead of waiting for shippers to pay their invoices, the freight brokerage company can receive a portion of the invoice value upfront from the lender.
By utilising supply chain financing, the freight brokerage company can ensure that carriers receive prompt payment for their services while also benefiting from extended payment terms with shippers. This optimisation of the cash flow within the supply chain allows the company to maintain strong relationships with carriers and shippers, meet their financial obligations, and continue operating smoothly.
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It's important to note that the specific terms, rates, and fees associated with supply chain financing can vary based on factors such as the creditworthiness of the parties involved, the volume of transactions, and the specific agreements between the freight brokerage company, shippers, carriers, and Cargo Financing.
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