How Can Channel Financing Help You Manage Your Supply Chain Better?

Channel financing is a working capital finance option that helps businesses get the required inventory and keep production free from any hiccups.

With this funding option, buyers can obtain goods on credit for a period that ideally ranges from 30 to 90 days. On the other hand, businesses availing channel financing gain access to funds before the maturity date. This, in turn, keeps other operating activities in the supply channel smooth and uninterrupted, thus, facilitating better supply chain management.

In case you are contemplating how channel financing helps to optimise supply chain management, don’t forget to take a look below!

Growing Importance of Supply Chain Management

The rise of e-commerce, globalization, and just-in-time inventory systems have made efficient supply chain management crucial for success. In fact, according to a survey by Deloitte, 79% of companies with superior supply chain capabilities achieve revenue growth greater than the average in their industries.

What is Channel Financing?

Channel financing is defined as a financial solution that aims to streamline the supply chain by providing short-term credit to suppliers and distributors. Unlike traditional supply chain finance, which focuses only on suppliers, channel financing encompasses the entire distribution network, offering a more integrated approach.

Ways In Which Channel Financing Facilitates Supply Chain Management

Here’s how availing channel financing can help you streamline your supply chain management successfully –

•  Boosts Cash Flow

The direct impact of availing channel financing is that it helps to boost the cash flow in a business. When a supplier benefits from channel financing services, it enables them to receive early payments and at the same time allows buyers to delay the same until maturity. This timely access of funds protects supply chain activities from any fluctuation in demand.

• Helps To Manage Inventory Better

Besides facilitating ease of accessing funds to boost cash flow, channel financing also helps businesses maintain and optimise inventory.

For instance, when you have access to accelerated cash flow, you can invest in better-quality raw materials and avail innovative solutions to forecast demand patterns in the business. Such an endeavor further allows you to build a responsive ecosystem of the supply chain.

•  Makes Working Capital Cycle Shorter

A shorter payment cycle comes in handy for businesses in more ways than one. However, the most important benefit is that it helps companies maintain inventory and keep operating activities smooth.

But as a supplier, when you opt to provide goods and services on credit to customers against longer payment dates, it creates pressure on your working capital.

Nevertheless, with channel financing, you can easily access funds as and when required to keep your operations smooth and shorten your working capital cycle successfully.

•  Promotes Steady Growth

As a business owner, you are already aware of the role and significance of working capital. You are also quite familiar with the struggles when working capital fails to meet operating expenses to keep daily activities smooth flowing.

However, the USP of channel financing is to extend substantial funds to businesses and replenish their working capital. Having adequate working capital helps keep daily operations active and helps to seek growth-based opportunities without straining cash flow.

•  Facilitates Collaboration Between Suppliers And Buyers

Ideally, within a supply chain, the buyer wants to hold back payment until maturity to optimise cash flow. On the other hand, suppliers look for quick cash conversions.

Their differences in trade objectives often slow down the conversion cycle and prompt inconsistency in the supply chain. But with channel financing, you can quickly get rid of such discrepancies in payment and increase business cash flow.

This allows you to supply goods and services to your clients on credit without widening the gap in your working capital.

As a result, buyers do not feel pressured to pay before the due date in turn. This not only facilitates a cordial relationship between you and buyers but also helps to retain customers.

•  Affordable Capital

Compared to traditional financing options, where businesses add to their debt burden, suppliers do not necessarily increase their liability through channel financing.

In this setup, you can access funds against your buyers’ unpaid invoices and meet working capital requirements promptly. Also, the interest paid to financiers is relatively less than what you would generally pay to a traditional lender. This makes accessing capital easy and affordable.

Though several chain financing companies are active in the market, you should be smart when it comes to selecting one as a business owner. You may also look for financing options like invoice discounting if your fund requirements are beyond supplier payment; or if you would prefer maintaining confidentiality about seeking financial aid. Nonetheless, look for financiers who are discreet about their arrangements and facilitate the process of accessing funds.

For instance, seek support from fintech companies who are adept at providing prompt and integrated cash flow solutions. Ideally, financiers who help to avail cash within 24 hours to 72 hours* prove most useful for cash strapped suppliers. While at it, you should also find out the terms and conditions that accompany the payment process to streamline it better. This will allow you to make the most of the channel financing system.

Bottom Line

Channel financing serves as a powerful tool for businesses aiming to elevate their supply chain management. Streamlining liquidity across the entire supply chain, not only fosters stronger relationships but also minimizes disruptions and boosts operational efficiency. The acceleration in processes like procurement of raw materials and payments further underscores its value. In essence, channel financing harmonizes different trade objectives, enabling businesses to maintain consistent cash flow and significantly enhance the quality of their operations. If you’re seeking a comprehensive solution for optimizing your supply chain, channel financing is an avenue worth exploring.