Covid -19 pandemic has burdened small businesses with innumerable operational and financial challenges. MSMEs contribute to 30% of India’s Gross Domestic Product but are still largely dependent on informal credit channels, triggering the demand for alternative financing solutions like supply chain financing.
Supply chain finance offers early payment solutions to sellers via third party financial institutions like Tata Capital and simultaneously extends credit to the buyer. It is a win-win situation for both parties and helps small businesses optimise cash flows.
While supply chain finance has been in existence for a long time, it was restricted to large businesses supply chain ecosystems. However, the advent of digitisation and state-of-the-art technology has made SCF convenient and accessible to millions of MSMEs, contributing significantly to the growth of the Indian economy.
Traditional supply chain financing was cumbersome, characterised by extensive paperwork, inefficient data-intensive processes, expensive procedural delays due to manual reconciliations, and prone to errors. However, with the right technology, supply chain financing can be streamlined, automated, and efficient to offer convenient and timely access to working capital to a large number of MSMEs.
How is technology transforming supply chain financing?
Technology can help automate the entire SCF transaction end to end, beginning with invoicing, approval, credit assessment to final settlement.
Let’s take a look at how technology transforms supply chain financing at every stage-
The use of new-age technology has streamlined the SCF process and made the entire onboarding process paperless. Right from supplier application forms to KYCs, the credit assessment, loan sanction, and disbursement requests, digital documentation has reduced the need for physical paperwork.
Technology has automated the entire process and enhanced real-time visibility of the overall process to all the parties involved.
2. Credit Assessment.
Traditional credit assessment would require the borrower to submit multiple rounds of paperwork and discussions with credit managers. However, with API banking and digital scorecards, borrowers can submit their applications within minutes.
Credit managers can run APIs and validate basic information quickly, and the scorecard automates preliminary checks and offers underwriters a primary go or no-go decision, making approvals faster. The use of AI-based algorithms with automation speeds up the underwriting process. AI combined with predictive analytics helps create a detailed buyer profile and helps make sharper decisions on credit eligibility based on accurate risk prediction.
3. Information Exchange.
With the current pace of technological advancements, no business or industry can work in isolation. Gone are the days when supply chain financing required shipping original invoice copies to the lender and seeking manual approval before making disbursements.
The right information at the right time is crucial to ensure timely disbursement. Technology has made it feasible to facilitate real-time information exchange between buyers, sellers, and financiers. The enhanced transparency helps authenticate trade-related information accurately, avoiding financing duplicate or fraudulent invoices.
Time is money in today’s dynamically evolving business environment. Traditionally, SCF transactions would take 8-10 days to disburse as lenders had to validate invoices, receive approvals, and send disbursement instructions to banks.
With ERP integration and online drawdown requests, borrowers no longer need to wait 8-10 days to receive funds. Once an SCF line is set up, sellers can access capital within 24-48 working hours and use the money to procure inventory and keep the business running smoothly.
The supply chain financing process was riddled with tedious manual reconciliations and settlements that were time-consuming, resource-intensive, and error-prone. However, with ERP integration, automated settlements are now a reality.
Integrated platforms connecting buyers, sellers, and financiers, allow for real-time reconciliation and settlements in all books of accounts, making it seamless and convenient.
Additionally, blockchain technology can result in quicker resolution of disputes and cost-effective invoice reconciliation. It reduces manual processes, handles a large volume of data, and provides an error-free audit trail for reconciliation.
Technology has revolutionised supply chain financing and made it accessible to corporations of all sizes across all geographies. Adopting technology and going digital has brought numerous benefits to all stakeholders (buyers, suppliers, and financiers). It helps transmit the benefits of SCF without the challenges and offers a win-win-win solution for all the involved parties. Tata Capital has pioneered supply chain finance in India for over a decade now. Leveraging the latest technology, Tata Capital offers seamless access to supply chain financing through tie-ups with various corporates pan India. Get in touch with Tata Capital experts to know more.