SUPPLY CHAIN FINANCING FOR MICRO, SMALL, AND MEDIUM ENTERPRISES

Abstract

This article explores how supply chain financing (SCF) addresses the persistent funding challenges faced by micro, small, and medium-sized enterprises (MSMEs). Due to limited credit histories and conventional lending barriers, these firms often suffer from delayed payments that strain liquidity. By leveraging the stronger credit profiles of large buyers, SCF provides timely invoice settlement, enabling smaller suppliers to secure essential working capital. Methodologically, the analysis emphasizes the triangular framework uniting buyers, suppliers, and financial intermediaries. Robust IT systems, precise invoicing, and clear communication play critical roles in SCF adoption. Findings reveal that early invoice payment reduces liquidity risks for MSMEs while allowing buyers to enhance their own cash flow management and preserve productive relationships with suppliers. Financial institutions also gain from lower default rates, as they base lending decisions on the buyer’s creditworthiness rather than the supplier’s. Overall, SCF fosters trust and collaboration throughout the supply chain, minimizing transaction costs and reinforcing long-term partnerships. Digital platforms further streamline processes by accelerating invoice confirmation and payment requests, reducing the likelihood of errors or disputes. In practical terms, SCF enables MSMEs to unlock working capital, regulate cash flow, and establish more resilient connections with larger partners. Buyers benefit from flexible payment schedules, and banks earn revenue through service fees or interest at manageable risk levels. Ultimately, this study underscores SCF’s transformative potential in bolstering the financial stability of MSMEs. By aligning the interests of diverse stakeholders, SCF cultivates a mutually beneficial environment that promotes sustainable growth, competitive advantage, and overall supply chain efficiency. As SCF becomes more accessible through user-friendly online tools and electronic documentation, even smaller entities can incorporate it into daily operations, fostering greater inclusivity across markets.