A structured financing scheme called “channel financing“ provides supply chain participants with working capital funding (the buyers and the sellers). Minimizing working cash issues aids the stakeholders in maintaining a smooth company flow.
What is Channel Financing?
A cash transaction is made possible via channel finance, which gives the supplier quick access to the selling revenues. It’s a method of finance wherein banks, venture capitalists, or any other financial institution provide short-term working capital facilities to the supply chain’s players. Overdraft, cash credit, bill discounting, and other products are among those that fall under the umbrella of channel financing. It is a credit facility that benefits the buyer and the seller equally.
Applications and Benefits of Channel Financing
The main advantage of channel finance is that working capital requirements are promptly funded. The following are some additional advantages of using supply chain financing and invoice financing:
Faster payments: The channel financing company pays sellers immediately on the sale of their goods. The payment procedure is now sped up by the channel financing providers’ direct connection to the sellers’ POS (Point of Sale) system.
Efficiency is increased since the seller may concentrate on activities of high value rather than chasing payments and checking the creditworthiness of clients because the financing firm is taking on the risk.
No-collateral financing When choosing channel finance, one need not consider collateral since financial institutions provide money in exchange for overdue bills. This facilitates a quick and easy fundraising procedure.
Liquidity is increased, and the likelihood of bad debts is reduced when payments are received on time. Additionally, production and efficiency are improved with continuous cash flow.
The effects of channel funding on the supply chain
The following are some ways that channel finance facilitates supply chain management:
Improved cash flow: By choosing channel finance, buyers and suppliers may postpone payments until the agreement’s maturity. This facilitates increasing cash flow. Additionally, the timely availability of money protects supply chain operations from changes in demand.
Better inventory control: Increased cash flow helps businesses to invest in higher-quality raw materials and creative demand forecasting techniques. This aids companies in satisfying client need and keeping appropriate inventory levels.
Shorter working capital cycles: A supplier’s working capital is strained when it offers products or services on credit. However, channel finance makes it simple to get cash when needed for a business to run smoothly and keep enough liquidity.
A strengthened partnership between the buyer and seller: In a supply chain, buyers like to put off payments until they are fully repaid, but sellers prefer immediate cash conversions. This disparity in trade objectives brings about inconsistencies in the supply chain. Suppliers may offer products or services on credit with the aid of channel finance without the working capital gap worsening. There is a close connection between the buyers and the sellers since the buyers are not under any pressure to pay before the due date.
Easy and inexpensive access to funds: A company may raise money by selling outstanding sale invoices in this arrangement. With considerably lower interest rates than conventional invoice financing, there is no added financial load. Overall, this makes it simple and economical to obtain finance.
So, with channel finance, payment and procurement have accelerated significantly. Buyers and sellers may sustain cash flow while having different trade goals, enhancing company operations’ effectiveness.
Qualifications for Channel Financing
We provide business loans for qualified micro, small, and medium-sized businesses. To qualify for a business loan, the owner of the company must satisfy the requirements listed below:
- A business’s annual revenue exceeds Rs. 7.5 lakh
- The business owner should own either a company or a residence.
- The company should be at least two years old or have been around for that long.
- Over Rs. 1.5 Lakh in ITR from the previous year
Required Documents for Channel Financing
The Channel Financing paperwork serves as evidence for the information given. We need a minimum amount of paperwork to execute a loan application, making it simple to acquire a business loan. The company owner may upload soft copies of the required papers on our website or mobile app. The papers that we need are as follows:
PAN Card and Bank Statement with Aadhar Card (previous nine months)
ITR from the previous year as evidence of residence and place of business
Raw material procurement and payment procedures have been quicker with channel finance. Due to this, the supply chain can now effectively sustain its cash flow and quickly raise operational quality, despite the divergent trade goals.