Initiatives for timely assistance and economic benefits for upcoming business owners have seen increasing demand depending upon the market conditions. A business, whether big or small, is always in need of working capital; i.e., financing required for funding its daily expenses other than the fixed assets. Businesses take SME or MSME loans from banks or other financial institutions to fund their working capital needs.
An easy and faster way to ensure the working capital balance is the Supply Chain Finance method. In simple terms, it means that the business owners or suppliers sell their high-value invoices to the buyers or the financial institutions at discounted rates to get short term credit to meet their working capital requirements, which is a two-way benefit process. The suppliers or the business owners get fast access to money owed to them, and the buyers get more time to repay the money. The mediating agency here is the financial institution or the Supply Chain Finance Agency.
How does supply chain finance work?
SCF is also known as Supplier Finance or Payables Finance.
The process of Supply Chain Finance can be easily understood as follows:
Consider a small business firm X that sells goods to a buyer firm Y.
- X will present an invoice for the goods amount to Y for repayment in the credit period of 30 days.
- Here, X will need the funds from Y as early as possible to meet its working capital expenses.
- Y, who is the buyer, will seek to extend the payment tenure so that the funds can be used for some other payments or can be conserved.
- At this point, the SCF agency Z gains importance.
- Now X will sell its invoice to Z at a discounted rate and get fast access to the money owed to it.
- Z will present the invoice to Y who will seek further extension of the credit period. Y gets the benefit of utilizing the payment funds for other purposes.
Here SCF involves a set of business and technological solutions to link the buyer, the supplier, and the financial institution.
Supply Chain Finance in India
Small Scale Business firms have been actively using Supply Chain Finance in India has been actively used by small scale business firms. Several Supply Chain Finance Companies in India have now come up with this idea to finance their short term credit needs. Lendingkart Finance Ltd. has fast emerged as an NBFC promoting financial assistance to SMEs and other small business owners in India.
- There are over 40,000 small business enterprises in India.
- We have been successful in disbursing 50,000+ loans to assist small business owners.
- Instant funds are made available to the business owners.
- We offer a myriad of financing schemes and techno-business solutions to cater to the working capital needs of the SMEs.
Features of Supply Chain Finance
- The buyer of goods agrees to approve his supplier’s invoices for financing by a lender.
- The SFC products are offered to manage the flow of working capital in the business.
- There is a distinct Supply Chain Unit to finance online as well as offline the supply chain partners.
- The invoices can be raised online on the dealers by the suppliers to avail credit immediately.
Benefits of Supply Chain Finance
Both suppliers and buyers can benefit from supply chain finance in many ways:
Benefits for suppliers
1. Optimize working capital:
By accessing supply chain finance, suppliers can receive payment for their invoices earlier than they would otherwise. As a result, their days sales outstanding (DSO) is reduced, resulting in working capital improvements.
2. Access lower-cost funding:
The cost of funding is usually lower for suppliers than it is if they use other sources of funding, such as factoring, making supply chain finance an attractive way of obtaining funding.
3. Improve cash forecasting accuracy:
When suppliers access supply chain finance, they may gain more certainty over the timing of incoming payments, making it easier to accurately forecast their future cash flows.
Benefits for buyers
1. Optimize working capital:
Buyers can also improve their working capital position with supply chain finance, as many companies choose to implement supply chain finance programs in conjunction with an initiative to harmonize supplier payment terms.
2. Improve supply chain health:
By offering suppliers supply chain finance, buyers can reduce the likelihood of a future supply chain disruption that could affect their own operations.
3. Strengthen supplier relationships:
Buyers can improve their relationships with suppliers by providing them with access to low-cost funding and may be in a stronger negotiating position as a result.
Benefits for Lender( Bank /Financial Institution)
- Collaborates between buyer and supplier and gains customers
- Services lead to expansion of customer base
- Increase in supply chain
Supply Chain Finance for Small Business
- We provide hassle-free and convenient paperless finance.
- There is a convenient online platform for both suppliers and buyers.
- Loan tenure of 30 to 60 days
- All products ensure that working capital is managed efficiently.
- There are financing schemes for both dealers and vendors.
- Credit can be easily availed in 1 to 3 days.
- Quick online application process
- No collateral required
Documents Required
Once you have assessed your need for supply chain finance, you can keep the following documents e-copies handy.
- Identity Proof/Address proof for the owner as well as business
- Recent Bank statements
- Recent VAT /GST documents
- Invoices for the last 3 months
- Sales ledger details for vendor.
Frequently Asked Questions
To apply for supply chain finance in India, small businesses can explore various supply chain finance companies in India. The process typically involves selecting a suitable provider, submitting relevant documents, and establishing a financial agreement. Small businesses should research and contact supply chain finance companies in India to initiate the application process and benefit from this financial solution designed to optimize their cash flow and working capital.
The maximum loan amount you can apply for in supply chain finance varies among supply chain finance companies in India. It primarily depends on your specific business needs and the supply chain finance process in place. These loans are designed to support small businesses, so the amount is often tailored to your requirements, ensuring efficient working capital management within your supply chain.
We understand the needs of small business owners and the challenges they face in the management of working capital .
Our loans have the following features:
- Easy to secure
- No collateral required
- Pre-approved and hassle-free credit
- Loan Approval in 24 hours.
Sometimes, your business may have delayed payment from your buyers or debtors. This blocks a fair amount of your incoming cash flow for a period that can be otherwise used for taking up a new project. In such situations, Supply Chain Finance becomes the need of the hour, where other forms of short term credit may not be possible.
Yes. We need your recent bank statements and VAT/GST documents to evaluate credit.
Our team takes just 1 to 3 working days to perform your credit evaluation, once you have submitted the right documents.
Days Payable Outstanding or the DPO is a financial ratio. It is used to determine how much time in days a company takes to pay its outstanding bills or invoices. Companies with higher DPO take more time to pay their outstanding bills.
Supply Change Finance works in such a way that the buyer does not have to pay extra to extend the repayment period and the supplier has to pay a discounted rate to get his outstanding payment earlier.
Supply Change Finance works in such a way that the buyer does not have to pay extra to extend the repayment period and the supplier has to pay a discounted rate to get his outstanding payment earlier.
Supply Chain Finance News:
Supply chain financing saving vulnerable MSME sector
Covid-19 has forced MSMEs into a vicious cycle of high costs, low profitability. The lockdown has suppressed their growth and made them vulnerable to mild economic shocks. Making the credit valve for vulnerable MSMEs keeps flowing is a big question. The continuous high dose of liquidity is crucial for the MSMEs sector. On a panel, the conversation on supply chain financing with Industry voices happened with- Paromita Chatterjee, Special Correspondent, CNBC-TV18
- Gaurav Bhatnagar – MD & Head, Trade & Working Capital, India & South Asia, Standard Chartered Bank
- Arun Poojari, Co-founder & CEO, Cash invoice
- Neeraj Bansal, COO – India Global, Leader – Supply Chain Realignment, KPMG India
Updated Date: 05-01-2022
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