The Indian logistics market is anticipated to maintain a CAGR of 10.7% between 2020 and 2024, thanks to streamlined supply chain management and integration of advanced technology.
Hence, it is high time both buyers and suppliers can opt for a supply chain finance that helps in maintaining the equilibrium in this chain. Needless to say, this credit entails several benefits that individuals need to know. However, before that, they should understand supply chain meaning in detail.
What is supply chain finance?
It is a short-term credit that optimises the working capital requirement for both sellers and buyers. Generally, this loan operates through a technological platform where the borrower can automate transactions and track the invoice’s approval to the settlement process. Generally, lenders offer this credit to vendor or suppliers through vendor invoicing, known as upstream finance.
Availing of this credit, buyers do not have to pay the supplier’s invoices immediately. On the contrary, the lending institution will buy all the invoices of the supplier and make the payment after deducting a small fee.
The buyer also does not need to repay the amount then and there; they get a window till the maturity date. It also qualifies as a type of business loan that helps funding at the right time to maintain smooth operation of the supply chain. Following are the benefits of supply chain finance both for buyers and sellers.
Supply chain loan benefits for buyers
The buyers can be benefitted from this finance as they get a longer credit period. It allows them to
- Stabilise the whole process of the supply chain.
- Ensure working capital flow.
- Positive cash effects generation.
- Increase liquidity.
- Improve credit score.
This supply chain finance also strengthens the relationship between buyer and supplier. Moreover, early payment enables suppliers to provide consistent services to buyers. Thus, individuals who are looking for best tips on how to set up own trading business must consider this fund that would allow them to raise funds later.
Supply chain loan benefits for suppliers
Besides early payment, this credit proves to be advantageous for suppliers as well. Following are of them.
- Weather financial turbulence
With the help of this finance, suppliers do not have to wait for buyers to pay invoices. They reach out to the lending institution and submit the invoices for early payment.
Therefore, it allows them to access immediate funds to upkeep business operations smoothly.
- Ensure growth
From this credit, suppliers can have adequate working capital, and thus they can fund growth and innovations in the business to pique the interest of changing consumer base.
With sufficient funds at hand, they can strategise how to ensure growth to remain on top of this competitive market and cater to consumers’ changing need.
- Funds at lower cost
Typically, the interest rate of supply chain finance is much lower than that of factoring. Even after paying the processing and other fees, the cost of borrowing is comparatively lower for this credit.
Moreover, while availing a loan and irregular repayment of the same impacts the debt-to-equity ratio of the supplier, it does not do the same as it involves receivables. On the contrary, the credit rating of buyers plays a significant role in this borrowing option. Along with that, this financing option also provides pre-shipment and promotes WIP financing.
Since this credit comes with no such end-use restrictions, borrowers can utilise the funds from managing logistics to procure raw material.
Several top financial institutions, including Bajaj Finserv, extend business loans for supply chain financing of up to Rs.45 lakh with repayment tenure of up to 84 months and competitive interest rates.
They also provide pre-approved offers that simplify and expedite credit availing. Such offers are available on various financial products like business loans, personal loans, credit cards and many more. You can view your pre-approved offer by sharing your name and contact number.
Therefore, supply chain finance helps to ensure financial discipline for every stakeholder involved in this process. Every businessman should know about supply chain management to leverage the optimum benefits of this fund. More specifically, it would help e-commerce businesses ensure smooth operations.