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.
What is Supply Chain Finance or Supply Chain Finance Meaning?
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 or SFC
LENDER( Bank /Financial Institution)
SFC reduces the cost of goods purchased
SFC reduces the Days Payment Outstanding or the DPO
Collaborates between buyer and supplier and gains customers
With DPO reduced, Working Capital requirements get improved
Cash flow becomes streamlined and smooth
Services lead to expansion of customer base
Supplies become stable
Finance costs are reduced
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
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.
Supply Chain Finance FAQs:
1. Why should you choose Lendingkart?
- Easy to secure
- No collateral required
- Pre-approved and hassle-free credit
- Loan Approval in 24 hours.
2. Why does my business need Supply Chain Finance?
3. Do I need any documents to get credit evaluation done?
4. How much time does credit evaluation take?
5. What is Days Payable Outstanding or DPO?
6. How much does supply chain finance cost?
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
While Mr. Neeraj appreciated translucency in business due to digitization, he also mentioned the company’s desire to reduce geographical dependence. Mr. Gaurav emphasized the company’s working capital requirement. He added that these requirements must be timely addressed. Mr. Arun explains the role of technology that is making secured transactions.
Covid-19 has disintegrated small and medium enterprises. However, the digitization of supply chain financing has served to dramatically bring down the costs and optimize working capital needs. It has assured SCF’s elaboration and relinquishment.
Updated Date: 05-01-2022