Supply Chain Financing Theory

Supply chain financing is closely related to supply chain management. Supply chain management is a management mode for the supply chain networks of core enterprises, supply chain financing is a business model in which banks or financial institutions provide financial services for each node enterprise in the supply chain of core enterprises.
The core enterprises in the supply chain are usually manufacturers. On the one hand, the supply chain is represented by a network structure dominated by core enterprises, which determines that the capital strength of the supporting enterprises in the supply chain does not match that of the core enterprises, supporting enterprises are in a weak position in the capital chain. In addition, due to the strength of core enterprises, supporting enterprises are at a disadvantage in information and negotiation, which in turn leads to further strengthening of their capital needs. On the other hand, fixed assets only account for a small portion of assets of supporting enterprises. Liquidity, inventory, and raw materials are the main manifestations of their assets, and their credit rating is generally low, these situations make it difficult for supporting enterprises to obtain loan services from banks or financial institutions that are secured by fixed assets. Logistics, capital flow, and information flow are three elements of supply chain operation. The gap in capital flow of supporting enterprises will be difficult to maintain the continuity of the supply chain, which will lead to the loss and waste of resources.
"Supply Chain Financing" is to find a large core enterprise in the supply chain and provide financial support for the node enterprises in the supply chain from the core enterprise as the starting point. On the one hand, to effectively inject funds into the relatively weak upstream and downstream supporting small and medium enterprises, to solve the problem of financing difficulties and supply chain imbalance of supporting enterprises; on the other hand, integrate the credit of a bank or financial institution into the purchase and sale behaviors of upstream and downstream supporting enterprises, enhance their commercial credit, and promote long-term strategic synergy between supporting enterprises and core enterprises, this improves the competitiveness of the entire supply chain.
The main operation idea of supply chain financing is to first straighten out the information flows, capital flows and logistics of relevant enterprises in the supply chain. banks and financial institutions should follow the stable and controllable receivables and payables information and cash flows, integrate the capital flows of banks or financial institutions with the logistics and information flows of enterprises. Then, banks or financial institutions provide enterprises with integrated business services such as financing and settlement services. The unified management and coordination of logistics, capital flow and information flow allows participants, including enterprises in the supply chain, as well as banks or financial institutions, to gain their own "Cheese", thus further improving the efficiency of supply chain management. At the same time, through direct control of materials, warehousing and logistics companies can help financial institutions reduce credit risks.
In the Supply Chain Financing Mode, once an enterprise on the supply chain node receives the support from a bank or financial institution, the capital is the "umbilical" to enter the supporting enterprise. It is equal to entering the supply chain, which can activate the entire supply chain and improve the market competitiveness of the supply chain. Supply chain financing not only helps solve financing difficulties of supporting enterprises, but also promotes effective interaction between finance and industry, so that banks or financial institutions can jump out of the limits of a single enterprise, from a more macro perspective, we will examine the development of the real economy, from focusing on static data to dynamic tracking of enterprise operations, fundamentally changing the perspective, thinking, credit culture, and Development Strategy of banks or financial institutions.
For banks or financial institutions, the overall credit of the supply chain is stronger than that of a single enterprise in the industrial chain. The interest rates and loans provided by banks or financial institutions change with the production stage, and adjusted with the credit risk. For example, in the order stage, due to high uncertainty, the interest rate is relatively high, and the number of loans is relatively low. However, as the production process progresses, the credit risk decreases, the interest rate decreases, and the number of loans increases. Therefore, the cooperation between risks and earnings fully meets the risk control and customer financing needs of banks or financial institutions. In addition, due to the combination of supply chain management and finance, many cross-industry service products are generated, and the demand for many new financial tools is correspondingly generated, such as domestic letters of credit and online payment, it provides great business opportunities for banks or financial institutions to increase their intermediary business income.
Main connotation of Supply Chain Financing
1. Unlike traditional financing services, supply chain financing is essentially a change in the credit culture of banks or financial institutions.
2. Supply Chain Financing is different from supplier financing.
3. Supply chain financing is not a single financing product, but a series of products.
4. Supply Chain Financing focuses on the flexible use of financial products and services supply chain financing.
5. The target of supply chain financing is limited to supporting enterprises with close relationships with core enterprises and commodity transactions.
6. Supply chain financing involves many specific business models, each of which includes different products.
7. Supply Chain Financing can greatly reduce business risks.
8. The operational risks of the supply chain financing business have been improved.
9. dynamically analyze the enterprise status.
10. From the perspective of business development and risk prevention, banks or financial institutions should establish strategic partnerships with core enterprises.
Although there are many links to generate profit in the supply chain, the highest profit returns always come from high value-added products and terminal products. While the product form of the supply chain is constantly being processed and manufactured, banks or financial institutions have expanded the production and sales of core enterprises by arranging preferential financing for supporting enterprises, core enterprises can also reduce their own financing and directly make profits from the value-added part of the supply chain to achieve "zero-cost financing" or even "negative-cost financing ".
The "Financing" action in the Supply Chain promotes the flow of products in the supply chain and converts low-end products to high-end products. In addition, it can benefit upstream and downstream products in the entire supply chain, it increases the value-added and core competitiveness of products and indirectly brings more benefits to core enterprises, banks or financial institutions.