The difference in trade objectives comprises a fundamental conflict across supply chains. While on the one hand, the supplier demands quick cash conversion for his inventory; on the other hand, the buyer wants to optimise cash and hold back the payment until maturity. Consequently, the supply chain ecosystem often suffers from inconsistent, slow conversion cycles.

In such a competitive trade-off, channel finance has become vitally important for operations to stay lean, especially under economic uncertainty. Particularly in trade today, it has become a credit facility mutually beneficial for all.

Now, while there is no thumb rule for efficiency, we break down five ways in which channel finance can make your supply chain management remarkably better.

Enhanced business cash flow

Channel finance allows suppliers to receive early payments and buyers to delay payments until maturity. This, in turn, enhances the business cash flow favourably. As a result, any fluctuation in demand leaves minimal to no impact on the supply chain operations, which remain consistent regardless.

Accelerated cash flow with channel finance not only improves funding but maintains inventory management efficiency as well. Businesses can invest in innovative solutions to identify, as well as forecast, the demand patterns. And in consequence, create a responsive supply chain ecosystem. No wonder the business environment today, conforms to the common expression “Cash is King”.

Additional Read: Is Supply Chain Financing Part of Growth Plan in India?

Shorter cash conversion cycles

Because channel finance is automated now, with minimal manual intervention, the value quotient has improved even more. As you may know, suppliers typically require payment for inventory sooner than the due date. In such scenarios, suppliers can access receivables immediately upon invoice approval and maintain sufficient liquidity.

Both the OEM and the dealer can counterpoise the revenue lost to delayed supply chain payments via early purchase/sale invoice discounting mechanisms. From delivery to cash, channel finance can shorten the cash-to-cash cycles dramatically, while early settlement of dues can also speed up the cash flow to provide financial stability.

Most importantly, the supplier as an SME can avail of the financial credit at much lower costs, which may not be possible to avail individually.

Fosters collaboration between buyers and suppliers

Consolidation of supply chain operations will directly follow from channel finance. As the process between procurement and payment becomes faster, this line of credit can facilitate a natural transition in the supply chain, from customary business “transactions” to “collaborations”. As a result, the complete network becomes one channel.

In consequence, the improvement in supplier-buyer relationships can strengthen the distribution network. And enable both suppliers and buyers to work in conjunction for improving the profitability of operations. Moreover, the collaborative approach can unlock enough liquidity in the system to offset disproportionate impacts, especially the benefits.

Additional Read: Building a resilient supply chain through channel financing

In conclusion

As a credit facility, channel finance allows businesses to maintain optimal cash flow, no matter the economic climate. When implemented efficiently, the credit facility can optimise the supply chain for enhanced ROIs. One of the reasons why it is commonly called a “win-win” financial solution.

At Tata Capital, we offer laxer terms on bespoke financial solutions to help you meet unique business needs seamlessly. Avail up to Rs. 2 crores on competitive terms with a flexible repayment tenure, no hassle. For further details, connect today!

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