This mechanism allows suppliers to receive accelerated payments on their approved invoices from the retailer, often at a discount. In essence, it is a set of financial tools and strategies employed to optimize the flow of capital through a retailer’s network of vendors. For example, a supplier may typically wait 60 days for payment. However, utilizing this approach, the supplier can opt to receive payment within a few days, albeit at a slightly reduced amount, freeing up their working capital.
The benefits of this system are multifaceted. For suppliers, it provides improved cash flow, reduced financing costs, and enhanced financial stability. For the retailer, it can strengthen supplier relationships, potentially lead to lower product costs through improved supplier efficiency, and enhance the overall resilience of its supply network. Historically, such arrangements have evolved from basic factoring to sophisticated programs leveraging technology and complex financial instruments.
