Why is channel financing essential for establishing a supply chain?

Why is channel financing essential for establishing a supply chain?

Channel finance can be described as a working capital financing facility, which enables channel partners like dealers, distributors or buyers to purchase goods and services. Typically, it is a short-term advance that enables supply chain stakeholders to avail funds from financial institutions for fulfilling various working capital requirements.

Additionally, several other benefits that accompany channel financing make it vital for the supply chain of a firm.

Reasons why channel finance is valuable

Channel financing offers several unique features and benefits, which is why it has become so crucial for an organisational setup.

Some of the most noteworthy benefits are as follow –

  1. Helps to meet the working capital gap

Generally, a firm’s working capital remains tied-up in its supply chain until all its invoices are processed. The said gap between sale and payment often leaves a cascading impact on various aspects of trade and retail.

With the help of channel financing, businesses can easily fulfill their working capital deficiency and continue with everyday operations. Also, a substantial loan value allows borrowers to meet all their financial requirements without straining available funds.

       2. Offers collateral-free loan facility

Facilities like invoice financing enable businesses to avail a high loan-value without pledging any asset as security. This puts borrowers at ease and enables them to access funds without going through rigorous and lengthy verification processes.

       3. Accompanies simple eligibility criteria

Leading financial institutions like Bajaj Finserv extend funding under channel financing against easy to meet eligibility criteria. Typically, the standard eligibility criteria to avail a business loan like this require the following –

  • Applicants must belong to the age group of 25 years and 55 years.
  • They should own a business for at least 3 years.
  • The business in question should have filed ITR for at least a year.

Such institutions offer customers with pre-approved offers to further simplify the process of availing finance. Such offers are provided on multiple financial products including business loans and personal loans as well. You can check your pre-approved offer online by entering your name and contact number.

      4. Simple documentation

Eligible businesses need to submit a set of documents to attest its eligibility criteria for invoice finance. Typically, applicants are required to submit documents that serve as valid proof of identity and address, like any KYC document.

Other than that they are required to furnish documents attesting for their income, such as ITR, bank statements, etc. It must be noted that documents required for a business loan for self-employed professionals and other prominent business entities may vary.

     5. Quick approval and disbursal process

Most leading financial institutions that extend funds under channel financing offer quick verification process. As a result, applicants receive faster loan approval, typically within 24 hours, as well as quick disbursal process. All these help businesses gain access to the required funds and meet their business requirements quickly.

Hence, it can be said that the benefits of channel finance help businesses to meet their working capital needs and streamline their operational activities effectively. Regardless, businesses should factor in a few things about this form of funding option to facilitate effective supply chain management. For instance, an applicant should find out more about the accompanying interest rates, the terms of repayment and additional charges and processing fee before applying for a credit.

Application process

Most financial institutions allow individuals to apply for a channel finance facility either online or offline.

One can apply for this credit option online by following these simple steps –

Step 1 – Visit the website of a financier.

Step 2 – Navigate to ‘Supply Chain’ finance option.

Step 3 – Click on ‘Apply Now’.

Step 4 – Fill up the form by providing the required details.

Step 5 – Verify the details shared and click on the ‘Submit’ button.

Once these steps are completed, representatives will contact applicants to initiate the verification process.

In a nutshell, it can be said that features like simple eligibility criteria, hassle-free application process, minimum documentation and high loan value makes channel financing an attractive funding option. Also, with a fair idea of these factors, one can benefit from this funding option and improve the quality of their operational activities significantly.