Supply chain financing: A successful strategy for development banks to assist business owners
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In a competitive market, the demand to close the gap between lenders and borrowers is typically greater as companies search for funding to maintain continuous business operations. Players with these criteria now have a platform to meet their capital needs thanks to Supply chain financing.
These platforms enhance the beginning of transactions, streamline trade flows, lower risk, make financing easier, and can also aid in the improvement of working capital management.
A report by BusinessToday.in says that the country's economic progress is being aided by the supply chain financing market. While the total market value in India is projected to be around Rs 18 lakh crore, the addressable supply chain finance industry is worth roughly Rs 60,000 crore.
What is Supply Chain Financing?
Supply Chain financing is a structure of supplier’s finance that allows suppliers to receive early payment on their invoices.
Supply chain finance enables buyers and suppliers to optimize their work capital by reducing the risk of disruption. It is also called reverse factoring.
It can also be defined as a set of technology-based business and finance processes that brings down the costs and enhance the efficiency of the parties involved in any transaction.
It works best when the buyer has a more acceptable credit rating than the seller and can thus access capital at a lower cost. This gives power to the buyer to negotiate well with the seller like rescheduling payments. The seller can upload products instantly to receive a quick payment from the intermediary financing body.
Supply chain finance, can also be referred to as "supplier finance" to encourage collaboration between buyers and sellers.
Types of Supply Chain Financing:
Pre-Shipment Finance: Banks are assisted by pre-shipment financing in processing credit requests against POs that have been submitted by bank customers who fall under a predefined Anchor customer category. These dedicated lines are established by banks for suppliers of corporations to use in order to guarantee the availability of necessary credit for the completion of orders. The length of these loans, the interest rates to be used, and any other terms, including the maximum permitted finance % availability or recourse, are all determined by the bank. The concept enables banks to release tiny amounts of credit from a pre-approved credit line for a particular use.
Post Shipment Finance: Invoice Discounting/Factoring, which aids banks in processing credit requests against invoices through invoice discounting or in purchasing customer receivables against invoices through factoring, is a part of Post-Shipment Finance in the form of Supplier Finance. Banks establish these specialized credit lines for suppliers to use in order to guarantee the availability of necessary credit for the financing credit duration required by credit-worthy customers. The length of these loans, the interest rates to be used, and any other terms, including the maximum permitted finance % availability or recourse, are all determined by the bank. Reverse factoring and invoice financing are two post-shipment financing options offered by buyers that assist banks in processing credit requests after the invoice due date. Additionally, it permits early Supplier payment through Reverse factoring on Anchor’s approved credit lines.
How does Supply Chain Financing Work:
Step 1: Ordering from the supplier
Step 2: Supplier fulfills the order, and invoices the buyer.
Step 3: Buyer approves the invoices, and confirms to the financial institution of payment at maturity
Step 4: Supplier sells (at a predetermined discount rate) to a financial institution
Step 5: Supplier receives the fund right away
Step 6: Buyer pays financial institution as agreed at maturity of the invoice
Supply Chain Finance Marketing India:
In India, Supply Chain Financing Market means banks offer Channel Partners/Dealers/Distributors of large corporations short-term revolving loan arrangements so they can buy products from the company and resell them to clients. The market size of SCF in India is approximately INR650billion. Banks/companies/NBFCs offering SCFs are listed below:
The market is mostly fragmented among PSU Banks: SBI, PNB, etc.
Pvt Sector Banks: HDFC, Axis, IndusIndand others
MNC Banks: StanC, HSBC
NBFCs: Captive Finance
Companies of corporate: Tata Capital, Aditya Birla Finance, Hero Fincorp
Various benefits of Supply Chain Financing for the Buyers and the Suppliers are:
Longer timeframes for supplier payments
Financing off-balance sheet
Quicker access to money
Receive discounts for early settlement
Faster translation of money
Process capability improvement
Trade Receivables decline
In order to maximize cashflows, supply chain finance, is a credit option offered by a startup to its suppliers and other channel partners.
Supply chain financing enables business owners to maintain operations by covering urgent needs for working capital. This aids in sharpening their emphasis on organizational development and improving operational effectiveness to yield better results. Proper partnerships are needed for this. Lack of operating capital can be a problem that prevents growth even when a company has a good product pipeline and business plan. Supply chain finance can help in this situation without hurting the company's accounts or pushing it toward heavy debt. By bridging the gap between supply and demand and encouraging idle capital to increase capacity utilization, supply chain financing does just that.
With SynoFin, supply chain finance needs to no longer be a worrying point for businesses. The entire supply chain process has become seamless with our supply chain finance software. We provide you with unique features which make the lending process more efficient. Features that make us unique are:
Truly integrated suite of products
Mobility app for Sales and Credit
New age Loan management software
Configure for Co-Lending
Web-based system for Operations and Credit
GL management in LMS
Web-based system for customers - Anchor/Spoke
Pre Integrated Accounting system
Why choose Synofin for Supply Chain Financing Software service?
Buyer / Seller onboarding
Bill confirmation by Buyer / Seller
Limit Set up for Customer
Limit reduction on every bill payment
Limit renewal on repayment
Escrow Account Setup
tri-party agreement of Buyer, Seller & Lender
Visit SynoFin to know more about us and to grow your business! Book for a free demo today.