Beyond Transactional P2P: Exploring Buy-Side and Sell-Side Trade Financing Techniques For Supplier Early Payment

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When it comes to the intersection of purchase-to-pay (P2P) and financing options, there is no shortage of available techniques to address early payment programs to suppliers. As David Gustin notes in the Trade Financing Matters research paper, Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain, these techniques can be generally segmented into buy-side and sell-side categories.

Buy-side approaches suggested include: p-cards, dynamic discounting, static discounting and reverse factoring, 
commonly called supply chain finance. Further, “On the buy side, large and mid-sized corporates want to optimize payment terms and maximize 
their working capital, while not punishing suppliers by making sure they have options to 
liquidate their receivables. Buy-side solutions require an approved invoice from the company to release cash.”

There are different approaches on the sell side. These include: invoice discounting, market auctions, pre-shipment finance, purchase order 
financing, factoring and distribution finance. Generally, “On the sell side, the seller wants to have access to funding alternatives, possibly for quarter, 
year-end or ad hoc needs.” However research has also suggested that, based on reasonable APRs, even large suppliers will accelerate payments consistently if offered the option.

This post is based on the paper Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain. The research brief is a useful primer for those in procurement and accounts payable that want to understand the receivables financing, trade financing and working capital management landscape – and all the different options available to them.

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