Organizations of all sizes have increasingly adopted supply chain financing to streamline the supply chain and optimize working capital. Being a truly win-win situation, mid-market OEMs can benefit highly by extending such financing solutions to their customers.
Channel finance or inventory financing is a means through which customers can access working capital from partnered financiers to procure inventory from OEMs. Removing the need for upfront cash payment or credit from OEMs, financiers step in and offer credit, allowing buyers to liquidate their inventory and then pay back the amount. Such financing is available to customers of OEMs at competitive rates as they are based not just on the customer’s standalone balance sheet but also on the strength of the supply chain association.
Channel finance is specifically essential for mid-market OEM’s as it offers the following advantages:
1. Strengthens supply chain relationships
To maintain the momentum of any business, all the members of the supply chain need to function at their optimum. But this is even more crucial for mid-market OEMs, who are in their growth phase and need their supply chain partners to step up and grow with them. When there is timely access to capital, customer’s financial position is strengthened, ensuring uninterrupted operations and smooth execution of trade across the various legs of the supply chain.
Additional Read: Building a resilient supply chain through channel financing
2. Increases revenue
Channel financing helps customers access working capital specifically to buy inventory from the anchor offering this facility. This approach allows customers to increase their appetite by trading higher volumes of stock where OEMs provide financing support. Over time, this helps OEMs increase their sales through these channels as customers are well funded. Additionally, customers also value the relationship with the buyer and prioritize liquidating such inventory faster.
3. Cash-flow management
One of the most significant advantages of channel financing is that collections can be accelerated. Instead of offering credit to customers, OEMs partnering with financial institutions like Tata Capital are assured of receiving payments against the inventory sold on Day 1. Moreover, a lot of time is saved since the sales team no longer has to follow up to collect these payments.
4. Reduced risk of bad debts
By bringing in a financing partner, OEMs can shift the risk of non-payment to them. While selling on credit, there is always a chance of bad debts as customer’s businesses could negatively turn during that period. By allowing financiers specialized in risk underwriting to take credit calls, occurrences of bad debts is completely minimised.
The entire process of application and execution of channel finance is relatively easy and seamless. The documentation required is minimal, and the process is simplified, allowing businesses to access capital quicker. This helps to save time without disrupting the movement of goods through the supply chain for want of funds. While specifics may differ depending on the financer and borrower, generally, these loans are collateral-free finance. This arrangement removes the additional task and difficulty for customers to arrange for collaterals.
At Tata Capital, we have digitized the entire process from application to sanctioning and onboarding to provide OEMs and their customers with a seamless experience.
Additional Read: Steps to Apply for a Channel Finance Online
6. The Tech advantage
Technology and cloud solutions increasingly make processes seamless, more efficient, and transparent. New payment methodologies have been game changing for supply chain finance. For instance, using cloud-based solutions enables the strengthening of the network between the OEMs and the buyers.
Tata Capital’s unique web-based and mobile app-based interfaces facilities a user-friendly customer experience at every stage for every transaction.
If you are an OEM looking to scale rapidly along with your supply chain partners, it would be helpful to understand how a working capital loan through channel finance can help unlock cash flows trapped within. When it comes to small and medium enterprises, the viability and the growth of these companies is often tied to their access and management of working capital. Timely access to working capital loans through channel financing helps businesses leverage this access to fuel efficiency and exponential growth.
At Tata Capital, we offer flexible and competitive terms for the Channel Financing facility and make sure to customize the programs to suit your unique business requirements. Reach out to our working capital experts to consult on the best channel-financing program for your business.
19 January 2021
4 mins read
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