Channel financing is an innovative financial setup that allows financial institutions to lend funds to the suppliers of a large corporate. This fund ensures that the smooth flow of business between the supplier and the buyer is maintained throughout.
Supply chain finance occurs either in cash credit or in the form of bill discounts. If a dealer or distributor is financially incapable of providing raw material to a corporate giant, it can avail supply chain financing.
With channel financing, working capital can be easily made available to the supplier. This enables them to meet the demands of the buyer within time. Thus, here the financial institutions not only look after giant corporates but also their suppliers and dealers.
Ways in which channel finance helps the supply chain
Dealer financing is not only useful for the suppliers but also for large corporates. It helps in facilitating the entire supply chain in various ways:
- Improves buyer-supplier relationship
Differences between the supplier and buyer exist in terms of payment and trade objectives. This often negatively impacts the supply chain cycle, thereby slowing the business. However, channel financing allows the supplier to provide goods to the buyer even on credit.
Thus, a buyer is free from an obligation to make payments before the prescribed due date. A supplier, on the other hand, is free from any financial constraint. Consequently, this keeps both parties on good terms with each other.
- Increased cash flow
Cash flow is the lifeline of any business. Supply chain finance makes funds easily available to the supplier and dealers. With early disbursement of payments, dealers can prepare themselves for providing bulk supplies to large corporates.
Thus, the easy and timely availability of funds ensures that the supply chain management is maintained smoothly.
- Reduced working capital cycle
Most of the time, dealers have to supply goods to large manufacturers against extended payment dates. This ultimately puts pressure on the available working capital of the supplier. There is a possibility that the entire supply operations get disrupted.
The cash flow from supply chain finance makes it possible for the supplier to get easy and quick access to funds. Thus, suppliers are able to manage their operations seamlessly and reduce the cycle of their working capital.
- Easy access to capital
Supply chain finance differs from traditional borrowing. First of all, neither the dealer nor buyer needs to provide collateral for it. If a business meets requisite eligibility criteria, it can access capital without putting any asset online.
Moreover, a dealer can get access to funds against unpaid invoices of a business. The interest rate for supply chain finance is also comparatively lower than conventional loans.
- Offers constant growth
It is futile to mention how crucial working capital is for any business. Without an adequate supply of working funds, the smooth operation of a business tends to decline. Channel financing ensures an easy supply of working capital.
With a constant flow of capital, businesses tend to operate and grow in a better way. In this regard, opting for a business loan from any reputed financial institution like Bajaj Finserv can also help meet a business’ growth objectives.
The NBFC also extends pre-approved offers that can make availing the process easier, faster and hassle-free. You can avail of such offers on financial products such as business loans, personal loans, etc. You can check your pre-approved offer simply by putting down some of the essential contact details.
With supply chain financing, financial institutions enable the bigger manufacturers to penetrate deeper into the market. Additionally, it provides the much-needed cash flow which most Indian MSMEs require to operate and survive.