We all know at this point that Supply Chain Finance (SCF) allows companies to optimize their cash flow by providing access to financing based on the creditworthiness of their buyers or the performance of their supply chain. The challenge is to provide payment solutions not only to the suppliers of these Buyers but also to those one or two levels below. Tier I suppliers are usually direct suppliers of the final product, whilst Tier II suppliers are subcontractors of Tier I suppliers, and Tier III are the subcontractors of the Tier II suppliers.

Funders provide short-term financing through an invoice discount mechanism to improve working capital and offer liquidity to suppliers and buyers, allowing them to extend payment terms. This will enable suppliers to receive funds quickly to pay their outstanding instalments while quickly releasing funds owed to their suppliers.

Usually, Micro, Small and Medium Enterprises (MSMEs) have limited access to traditional forms of financing. This Deep Tier Financing aims to provide them with access to financing solutions linked to the performance of the entire supply chain, seeking to establish a healthy and mutually beneficial supply chain ecosystem called Collaborative Supply Chains.

After Covid-19, supply chains worldwide found the information line was broken due to suspicions of using such information. However, the arrival of sustainability efforts by big corporates and regulators implementing measures to achieve net-zero supply chains is pushing chains to share information. SCF platforms have a crucial role, given their ability to collect and analyse data beyond financial metrics.

This position of SCF platforms is particularly pertinent to sustainable finance projects and Deep Tier Supply Chain Finance (DTSCF) that target the lower echelons of the supply chain. To achieve a sustainable and collaborative model, all players must actively work towards meeting targets and supporting sustainable development. To help small and medium-sized suppliers plan their investments in digital and energy-efficient resources and improve liquidity and their links with the global supply chain ecosystem, they must partner with financing funders that give assurance and knowledge.

FCIreverse, is not only a tool that allows deploying domestic transactions, but it is also a collaborative instrument to ensure that Deep Tier Supply Chain Finance (DTSCF) is performed in all countries where Tier II and Tier III suppliers are located, in partnership with other funders that understand the targets of the buyers and the financial goals, but also coveting to drive the force for sustainable development, the main focus for the entire world.

This article was written by Ms Monica Martin Blanco, FCI SCF Consultant, for the May 2023 edition of the FCI In-Sight Newsletter.

Discover more

• This article was recently published in the FCI In-Sight Newsletter, May 2023 Edition. To read more, click here.
• Join us at the 55th Annual Meeting, taking place in Marrakech from 17-21 September 2023, as we dive into Supply Chain Finance, Receivables Finance, Factoring, and so much more. Register today by clicking here.