Channel Financing

In today’s economic environment, distributors are being relied for the bulk supply and distribution of goods on a frequent basis. Distributors are the sales arm of a company. They don’t just sell products, but they provide engineering support, and manage inventories to create value for manufacturers, wholesalers and customers. It’s really good to see that today’s distributors are empowered with financial loans that help them grow in their domain. With channel financing, suppliers are able to access the necessary funds and free up their working capital.

What is Channel Financing?

Channel financing is an innovative finance mechanism through which the bank meets the financial needs at the supplier’s end and helps sustain a seamless supply chain flow. It is an innovative product to extend working capital finance to the suppliers and dealers having business relationships with large companies in India. Simply put, channel financing makes access to capital easy and affordable. The different products covered under channel financing are cash credit, overdraft, bill discounting, etc.

Features and Advantages of Channel Financing:

Channel financing is a structured program through which financial institutions are able to extend short term advances. This helps businesses and suppliers to boost their efficiency of their supply chain.

Here are the features and advantages of Channel Financing:

• Collateral free finance: The first, foremost and best thing about channel finance is that one doesn’t need think about collaterals for opting channel financing. The financial institutions provide funds against the unpaid invoices. This helps make the funding process fast and simple.

• Quick payment process: Sellers are able to receive immediate payment from the channel finance provider. These days, the channel finance providers directly connect with the Point of Sale (POS) in order to speed up the payment process.

• Improves work efficiency: As the risk is assumed by the financial institutions, the seller/distributor is able to focus upon the high – value tasks instead of just chasing behind the payments and verifying customer’s creditworthiness.

• Easy process: The entire process of execution channel finance is relatively easy. The documentation requirement is minimal and the process is simplified. This allows businesses to access capital quickly.

• Increased liquidity: As the payment is received on time, the chances of bad debt become really less. Finally, this helps boost efficiency and productivity.

• Reduced risk of bad debts: With channel financing, OEMs take the risk of non – payment. By allowing financiers specialized in risk underwriting to take credit calls, the occurrence of bad debt is completely minimized.  

The effect of Channel Finance on Supply Chain:

With supply chain finance, buyers and suppliers use the cloud-based platform to communicate about the finances and work with the financial institutions. This enhances the business cash flow favorably. Channel financing plays a pivotal role in improving liquidity, necessitating invoice approvals and defining payment timings for the supply chain stakeholders.

Eligibility Criteria for Channel Financing:

Channel financing is offered to eligible small, micro and medium enterprises (MSMEs).  The Eligibility Criteria is given below:

• Business owner must be Indian National.
• Turnover should be more than Rs. 7.5 Lakhs.
• He must have a decent CIBIL score.
• At least 2 years business tenure
• Minimum age to apply is 24 years.

Documents required for Channel Financing

An individual must have the following documents to apply:

• KYC documents – PAN Card and Aadhar Card
• Relevant business financial documents
• Certificate of business ownership
• Bank account statements of the previous 9 months
• ITR for the last year

Conclusion

So, are you in need of channel financing and looking for a right institution. Mynd Fintech is a reliable digital lending marketplace focused on enabling Supply Chain Finance Solutions.  Get in touch with us today!

FAQs:

Q1. What is the objective of channel financing?

Ans. The objective of channel financing is to provide integrated and financial solutions to the distribution channels of a given industry.

Q2. What is channel finance in banking?

Ans. Channel financing is a kind of financing that provides immediate realization of sale proceeds to the supplier, making it a cash sale. It’s a funding mechanism by which venture capitalists and financial institutions provide short – term working capital facilities to the supply chain stakeholders.

Q3. What are the interest and fees for the channel financing?

Ans. Channel financing can be availed with the nominal interest rates and no hidden charges. The interest rates are calculated on the daily utilization of the credit limit.

Q4. Who can avail supply chain finance?

Ans. Entities like – public & private limited companies, partnerships, sole proprietorship and limited liability companies in India can easily avail supply chain finance.

Q5. What is the limit to avail supply chain finance?

Ans. The limit to avail supply chain finance depends upon the business requirements, financial history and creditworthiness of business.