In today’s economic context, distributors are dependent regularly on the bulk supply and distribution of commodities. Distributors are a company’s sales force. They not only sell items, but also give engineering assistance and inventory management to create value for manufacturers, distributors, and customers. It’s great to see that today’s distributors have access to financial assistance to help them expand in their field. Suppliers may acquire the finances they need and free up operating capital through channel financing.
What exactly is channel financing?
Channel financing is an innovative finance technique in which the bank serves the financial needs of the provider while also assisting in the maintenance of a continuous supply chain flow. It is a unique solution that provides working capital credit to suppliers and dealers that have business links with significant Indian corporations. Simply, channel finance makes money accessible and inexpensive. Cash credit, overdraft, bill discounting, and other goods are covered under channel finance.
Channel Financing Applications and Benefits
The main advantage of channel finance is that it provides timely money for working capital needs. Aside from that, the following are some of the additional advantages of obtaining supply chain financing:
- Faster payments: Sellers receive instant money from the channel finance provider for their transactions. Channel financing providers can connect directly to the sellers’ POS (Point of Sale) system, speeding up the payment process.
- Improved efficiency: Because the finance firm assumes the risk, the seller may focus on high-value tasks rather than chasing down payments and assessing clients’ creditworthiness, enhancing efficiency.
- Collateral-free lending: When using channel finance, one does not need to consider collateral since financial institutions lend cash against outstanding bills. This expedites and simplifies the funding procedure.
- Improved liquidity: Receiving payments on time offers the liquidity, and the likelihood of bad debts decreases. Furthermore, with consistent cash flow, efficiency and production improve.
Supply Chain Meaning
A supply chain meaning defines a whole system of making and delivering a product or service, beginning with the procurement of raw materials and ending with the delivery of the product or service to end consumers.
The influence of channel finance on the supply chain
Here are some examples of how to channel finance might help with supply chain management:
- Improved cash flow: By using channel finance, suppliers can get early payments while purchasers can postpone payments until maturity. This aids in increasing cash flow. Furthermore, the timely availability of money protects supply chain operations from any variations in demand.
- Better inventory management: Increased cash flow allows businesses to invest in higher-quality raw materials and deploy new forecasting systems. This allows firms to keep correct inventory levels and satisfy client needs.
- Shorter working capital cycles: When a supplier sells products or services on credit, its working capital is put under strain. However, with channel finance, one may simply obtain cash as and when needed to ensure smooth operations and sufficient liquidity.
- A stronger relationship between the customer and the seller: Buyers in a supply chain prefer to defer payment until maturity, but sellers prefer fast cash conversions. This disparity in trade goals causes irregularities in the supply chain. Channel finance enables providers to sell products or services on credit while not increasing the working capital deficit. Buyers and sellers have a friendly connection since they are not under any obligation to make payment before the due date.
- Access to cash is simple and inexpensive: In this configuration, an organization can raise revenue by selling outstanding sales invoices. There is no added debt load, and interest rates are cheaper when compared to traditional loans. Overall, this makes capital accessible and inexpensive.
As a result of channel finance, procurement and payment have become considerably more rapid. Despite differences in trade aims, buyers and sellers can keep cash flowing and so improve the quality of corporate operations.
Processes like raw material procurement and payment have become more efficient thanks to channel finance. As a result, despite differences in trade objectives, the supply chain may now effectively sustain its cash flow in the company and increase the quality of operations.
Channel financing, as a loan facility, enables firms to maintain optimal cash flow regardless of the economic condition. When used correctly, the credit facility may optimize the supply chain for higher ROIs. One of the reasons it is usually referred to as a “win-win” financial solution
Because of the new GST legislation, the supply chain will be forced to focus more on customer service and transportation expenses. The cost of transportation will fall because the barriers between states will be less severe than under the existing tax structure. The supply chain would run more smoothly, and shops would be able to deliver the goods on time, taking care of their consumers in return.