How Channel Finance Can Facilitate Supply Chain Finance?


It’s critical to keep good relationships with your suppliers and clients for Supply Chain Finance. They are the numerous elements that make up a supply chain. Regardless of whether you have ready funds or not, you must manage working capital to guarantee that your supply chain runs smoothly. Bearing this in mind, channel financing might be a great idea. 

A kind of business loan, channel finance offers the funds required to ensure the supply chain runs smoothly and effectively. Channel financing is often quite feasible, since it permits suppliers to avail working capital as well as offers cost optimisation advantages to buyers.

Read on to learn how channel finance can facilitate supply chain finance:

1. Improves Cash Flow:

The direct effect of obtaining channel financing is that it aids in the expansion of a company’s cash flow. When suppliers use Supply Chain Finance, they are able to obtain early payments while also allowing purchasers to defer payments until maturity. This quick access to finance shields supply chain activity from demand fluctuations.

Supply Chain Finance
Improves Cash Flow

2. Better Inventory Management:

Supply Chain Finance helps organisations maintain and optimise their inventory in addition to making it easier to get funds to enhance cash flow. When you have faster cash flow, you can, for example, invest in higher-quality raw materials and use new technologies to predict demand patterns in your firm. This type of effort also helps you to create a responsive ecosystem within the supply chain finance.

Supply Chain Finance
Better Inventory Management

3. Reduced Working Capital Cycle:

Businesses benefit from a shorter payment cycle in a variety of ways. The most crucial benefit, however, is that it assists businesses in maintaining inventory and smoothing out operations. However, as a supplier, providing credit to consumers with extended payment terms puts a strain on your working capital. Channel financing allows you to access funds when you require them so that your operations run smoothly and the working capital cycle can be kept short.

Supply Chain Finance
Reduced Working Capital Cycle

4. Promotes constant growth:

As an entrepreneur, you probably know the importance of working capital and the struggles that you could face when working capital doesn’t meet operational requirements, and daily functioning goes haywire. To keep supply chain finance steady and ensure there is sample working capital, channel finance provides adequate funds for a business’ working capital needs. Thereby, the firm can concentrate on growth-inducing opportunities without worrying about cash flow restraints.

Supply Chain Finance
Promotes constant growth

5. Aids in the alliance between suppliers and customers:

Buyers in a supply chain would prefer to defer payment until maturity in order to maximise cash flow. Suppliers, on the other hand, are looking for speedy cash conversions. Their disparities in trade goals frequently hinder the conversion process and cause supply chain instability.

However, with channel finance, you can immediately eliminate payment anomalies and boost your company’s cash flow. This enables you to offer credit to your customers without broadening the gap in working capital. As a result, customers are not under any need to pay before the actual due date. Not only does this enable a pleasant relationship between you and your clients, but it also aids in customer retention.

Supply Chain Finance
Aids in the alliance between suppliers and customers

6. Feasible capital funds:

Unlike traditional financing methods, which add to a company’s debt burden, channel financing does not always increase a supplier’s liabilities. With this configuration, you can quickly access funds against unpaid bills from your buyers and meet your working capital needs. In addition, the interest that financiers charge is often lower than that paid towards a traditional loan. 

If you have fund requirements beyond regular supplier payments, you may want to consider invoice discounting as a source of funding. This could also work if you are confidentially looking to access some limited funds.

Supply Chain Finance
Feasible capital funds

If that’s not all, channel finance becomes a reason to strike a collaboration between a business’ suppliers and its customer by balancing the disparity in their trade objectives. Finally, channel finance is a more affordable method of supply chain finance, since interest rates aren’t as high as those offered by traditional banks or other financial institutions.

Processes such as raw material procurement and payments for the same have become quicker thanks to Supply Chain Finance. Therefore, despite the disparity in trading objectives, supply chains can now successfully sustain their cash flow and increase the quality of their operations.

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About the Author: Anand Kumar

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