Logistics is a term most commonly applied to companies who provide the warehousing and transportation of goods from the manufacturer to the end customer, wherever in the world they may be. This is an accurate although slightly narrow definition of the concept because virtually every business is dependent on efficient, reliable logistics management. And naturally that requires appropriate funding.
Originally used by the military to describe methods of procuring, storing, transporting and deploying equipment, supplies and assets, the term has been adopted by businesses as the perfect analogy for the management of commercial supply chains. Effective logistics management ensures that at every point of the chain, however complex and regardless of the number of parties involved, the right resources are in the right place at the right time.
It represents a plan for ideal conditions but builds in safeguards to anticipate and minimise the effect of negative pressures. Poor logistics management can have serious consequences for the profitability of a business and at its most extreme can wipe out fragile margins.
Logistics Finance Comes of Age
As a key part of the traditional business model, trade finance – the financing of international trade flows – was for decades the dominant financial concern both for companies and for their banks. With the growth of international trade along ever more intricate chains, supply chain finance has developed and matured into a major function of funding institutions.
Logistics finance is concerned with every step on the trading ladder. Rather than focusing simply on the top-level transactors it recognises the need to finance the suppliers and service providers whose contribution may seem incidental but are every bit as important. The emergence of new funding providers has shaken up the system, with new technologies like APIs and blockchain, combined with a readiness to provide the logistics finance necessary to keep the wheels of commerce turning.
Logistics Finance Options
Alternative products abound; different options suitable for all kinds of situation. For example, transport and plant present very specific challenges and can require substantial investment, so it makes sound economic sense to opt for hire purchase arrangements or finance leases and operating leases. These are generally much more cost-effective than outright purchase and often come with a range of flexible repayment options.
For broader logistics financing needs, there are various methods of raising finance against intangible assets. They are based on the need to close the gap between supply and payment so that businesses can trade with the speed and agility needed to retain their competitive edge.
One extremely popular option is commercial invoice factoring. The concept of factoring – buying a debt – is centuries old and it endures today as a fast, efficient method of realising the value of receivables. By selling your invoices to a factoring company, not only do you raise cash instantly but you also sub-contract your credit control operation. The price you pay for this service can easily outweigh the costs involved not only in collecting the debt but also in operational and trading delays caused by ponderous cashflow.
Commercial invoice factoring is used by tens of thousands of UK businesses because it makes good business sense. Once the preserve of the banks, commercial invoice factoring is now offered by most of the newer alternative finance providers. Invoice discounting follows a similar model, the main difference being that the finance company collects on your behalf rather than assuming the debt itself.
Designed according to similar principles, purchase and trade finance options allow businesses to raise investment against their confirmed customer orders, which frees up funds to pay suppliers of material, goods and services, whether domestic or imported.
Dynamic discounting is a mutually beneficial means of managing transactions which involves the agreement of payment terms between supplier and buyer which speeds up payment in return for a discount. It can be structured as a sliding scale so that the earliest payment attracts the highest discount and the price payable increases with time. Employed with care so as not to erode the value of a debt significantly, it can accelerate cashflow to enable a business to meet logistics obligations much more swiftly, ensuring the continuity of profitable trade.
Stellar Capital is highly experienced in all forms of logistics finance. Our clients come from a diverse range of industry sectors but they all share the same need: to manage the supply chain effectively and profitability. We have built an extensive network of strategic financial partners who can offer solutions to the specific demands your company faces in maintaining the optimum flow of trade. Find out how we can help you.