To ensure they can maintain adequate inventory levels and to ensure that daily operational activities run smoothly, businesses can choose a particular kind of working capital finance known as channel financing. By selecting channel finance, a firm will not just be able to get goods on a credit basis, often up to 90 days, but will also be able to access funds before the maturity date.
Naturally, every other operations activity along the supply chain can function smoothly, and supply chain management becomes stronger. Here are a few ways in which channel financing helps manage your supply chain:
1) Enhances Cash Flow:
The most apparent effect of obtaining channel financing can be seen through a sudden increase in cash flow. When suppliers use channel finance services, they can obtain early payments while also allowing purchasers to defer payments until maturity. Such timely access to finance shields the supply chain activity from probable demand fluctuations.
2) Inventory Management:
If cash flow improvements solely do not appeal to you to select channel financing, you will find that such funds subsequently offer the opportunity to manage your inventory too. For instance, when your cash flow is boosted, you are likely to invest in higher-quality raw materials to improve your product. Or you may opt for innovative solutions that can forecast patterns of future demand with higher probabilities. You will be able to develop a supply chain that has a more responsive ecosystem.
3) Shortens Working Capital Cycle:
Businesses benefit from a short payment cycle in a variety of ways. The most crucial benefit, though, is that it assists businesses in maintaining inventory and keeping the wheels of daily operations well-oiled. As a provider of goods and services, offering credit to consumers with extended payment terms could put a strain on the business’s working capital.
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However, with channel financing funds, you can quickly procure funds when you need them to ensure no hiccups in the operations and reduce the working capital cycle successfully.
4) Facilitates Steady Growth:
You may already be aware of the significance and role of working capital for a business. If you are a business owner, you probably understand the challenge of maintaining working capital such that operational expenses are met, and regular activities run smoothly. Channel finance has a USP in this regard – it allows organizations to have extra funds to keep adequate working capital levels so that they can explore better growth-related prospects without worrying about cash flows.
5) Improves Vendor-Buyer Relationship:
In a regular supply chain, buyers will wait to make payments on the maturity date, whereas vendors need as much quick, liquid cash as possible. This discrepancy in trade objectives could hinder the pace of the conversion cycle and render the supply chain inconsistent. Channel financing gives you access to extra funds so that you can easily offer credit to your partners, without touching working capital, thereby improving the vendor-buyer relationship.
Channel financing, when compared to traditional methods of financing, is a much more affordable option. Not only can you access funds by simply producing the unpaid invoices of all your buyers, but the interest rate for channel finance is also quite low. Many reputed financiers such as Bajaj Finserv, will be able to help identify your needs and find the right kind of channel financing to fund your business.
Out of the various options for working capital finance, channel financing is the one that seems to have gained the most popularity.