Channel Financing is a working capital funding that helps stakeholders to purchase the necessary inventory from corporate anchors. This financing allows buyers to procure stock timely without paying upfront and access credit from financiers for 60 or 90 days, depending on the cash conversion cycle of the business. While the channel partners benefit from the assured availability of funds, corporates can use it as an effective strategy to strengthen the supply chain better.
How does channel financing help manage the supply chain better?
A corporate providing a channel financing facility for its customers offers several benefits to them. These benefits, in turn, improve the supply chain management for the corporate.
Let us first look at the benefits a channel partner gains through Channel Financing:
1. Access to Working Capital:
Access to working capital is one of the biggest concerns deterring small businesses’ growth. Channel financing ensures a seamless flow of working capital to keep the business running. The access to these funds in a guaranteed and timely manner allows the customers to manage operations seamlessly and invest in their growth.
2. Reduced Cost of Capital:
Channel financing is based on the supply chain linkage between buyers and sellers. Unlike other working capital loans, where the underwriting is done solely on the borrower’s standalone balance sheet. Due to this feature, borrowers can access capital at much lower interest rates through channel finance than their conventional loan offerings.
3. Improved Cash Flows:
With channel financing, buyers can pay for inventory after they’ve converted it to cash, reducing the burden on cashflows. The entire payment process to the corporate gets streamlined, improving cash flows in the long run.
4. Steady Growth:
Channel financing provides adequate working capital for every business. And this working capital adequacy stabilizes operations for small businesses, allowing them to seek growth opportunities without jeopardizing the current business.
Additional Read: Is Supply Chain Financing Part of Growth Plan in India?
As the channel finance partner benefits from these aspects, the corporate gains too.
1. Accelerated receivables:
Channel finance ensures that the corporate receives payment through the financier on day one while extending credit to its channel partners. This approach improves collections and reduces the administrative costs as there are no follow-ups needed to speed up collections. There is also a substantially lower risk of bad debts as payments are received from financiers immediately upon sale.
2. Stable Channel Partners:
Through channel financing, a steady supply of working capital is maintained to the anchor’s ecosystem partners. Thus, channel partners are more stable in their operations and can run the business effectively. The productivity of a corporate’s supply chain depends on every single player in the wheel. Channel financing empowers these channel partners to invest in their growth and contribute to that of the anchor.
3. Strengthen supply chain relationships: –
Given that, these benefits are accessible to the dealer or distributor through their association with the corporate partner, channel financing helps strengthen ties between the ecosystem players. Moreover, it also enhances goodwill in the customer’s minds, encouraging them to do more business with the corporate anchor.
Additional Read: Which type of companies are eligible to get a Working Capital Loan
Availing channel finance is incredibly easy!
No need for collateral
With Tata Capital Channel finance, your customers can access a collateral-free loan. Thus, the process is easy and quick, requiring minimal documents to apply for it.
Flexible product structuring
With a diversified product portfolio across wholesale and retail finance segments, Tata Capital provides flexible structuring of the product depending on the nature of the anchor’s business. This customization allows more partners to avail of the facility, ensuring scalability of the channel financing program, which is crucial for its success.
The Bottom Line
Channel finance is truly a win-win proposition for all stakeholders and will help manage the supply chain better. Wondering how to structure your channel-financing program? Reach out to our experts for a strategic supply chain finance solution tailored to suit your unique business needs.