In times of economic unrest, financial stability remains a primary concern across value chains. As buyers delay payments and business operations suffer, liquidity management can become difficult. In such a scenario, businesses can leverage channel finance to relieve cash flow strains efficiently.

An innovative credit facility, channel finance provides essential liquidity in the supply chain via short-term working capital loans. Channel finance essentially involves three stakeholders, namely the buyer, suppliers, and the financial institution. In this line of credit, dealers/suppliers (or “spoke”) can fund the purchase of goods and services from a corporate (or “anchor”) well before the maturity date. And consequently, keep the flow of capital optimal.

Additional Read: How Can Channel Financing Help You Manage Your Supply Chain Better

Key features of channel finance include:

  • Digital solutions for seamless transactions
  • Suppliers enjoy early payment for invoices, overdue or otherwise
  • Enhanced cash flow
  • Buyers receive more time to pay off balances
  • Complete track of invoice approval and settlement
  • Access to finance at lower costs
  • Shortens cash conversion cycles

How does channel finance work?

Contrary to traditional finance, channel finance benefits every node in the value chain, from suppliers to buyers. Businesses can easily meet immediate fund requirements, including inventory finance, accounts payable, bills of exchange, among others.

To illustrate: suppose a supplier requires payment earlier than the maturity date, which typically falls between 30-60 days of purchase. In such a case, the buyer can clear the approved invoice raised by the supplier in two ways. He can either pay the dues early in return for a dynamic discount – bulk discount usually offered on early payment.

Or else, he can avail the channel finance facility from a lender, who will deduct a nominal fee for such finances, and make instant payment. Besides, the buyer receives ample time to repay the lender, usually by the intended maturity date.

Not to mention, all financial transactions in channel finance are done digitally, so not only does he receive faster access to cash but can also, claim tax deductions on the total expense. In this way, channel finance allows value chains to function optimally in any business environment.

Below, we look at how businesses can avail of channel finance online.

How to apply

Channel finance is relatively easy to avail, irrespective of the business entity, and usually with a minimal documentation process. Interested borrowers, who meet the eligibility requirements, can secure channel finance in three simple steps.

Step I:

Interested borrowers can apply for channel finance with a lender of choice. Nowadays, most lenders extend online application facility for easy transaction.

Step II:

In the online application form, fill out the mandatory data fields. Now, while the application process may differ across lenders, most lenders typically request personal and business details.

Step III:

Once you have registered successfully, wait for the lender to contact you.

Additional Read: Which type of companies are eligible to get a Working Capital Loan

Undoubtedly, channel finance offers a highly effective way to optimise value chain operations. However, the timely availability of the funds will be the key.

For convenient credit terms, SMEs can avail of channel finance from Tata Capital. Rely on our corporate online portal to obtain value added products and manage account transactions seamlessly; check the repayment schedule, raise service requests, download financial statement, and whatnot. Get in touch for further details.

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