Everything You Need to Know About Supply Chain Finance

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Supply chain finance, or SCF, refers to the techniques and solutions utilized to reduce operating cost while improving business efficiency. SCF includes both the buyer and seller, linked via the sales transaction using various technology-based solutions.

As per a survey conducted across all major industries in the country, 50% of respondent businesses stood as leaders in their industry of operation.The survey also resulted in a finding suggesting the participation of both manufacturing and services sectors.

As payment receipt from B2B customers remains reportedly late, SCF can critically contribute to bridging such financing gap. Supply chain finance thus helps reduce the risk associated with capital investment by a significant margin, allowing business organisations to seek greater margin without jeopardisingtheir assets.

A detailed look into SCF

Supply chain financing involves several aspects and events of a physical supply chain. These include – 

  • Invoices issued by a seller
  • Goods purchased (or accepted by buyers)
  • The initialisation of purchase orders
  • Inspection of goods before shipment
  • During shipment

Supply chain finance also allows companies to avail short-term, unsecured credits, mostly in the form of business loans to optimise their flow of capital. Allocation of sufficient liquidity to allow unrestricted movement of goods is one of the key features of effective supply chain financing.

SCF is often considered as an extension of a particular buyer’s accounts payable instead of conventional financial debt. Suppliers issue it against actual sale of their receivables, which allows paying for the goods only.

In recent years, supply chain finance in India Has become a popular means of gaining monetary assistance, especially for SMEs and MSMEs across the nation. It is extremely beneficial for smaller organizations that risk facing inadequate working capital.

How does supply chain finance work?

Supply chain finance in India involves a financial institution that works as a financial provider that settles the invoices before the payment due dates. It is usually done at a substantially lower financing cost when compared to other types of funds.

The detailed working of a supply chain that every businessman should know includes the following.

  1. The process begins as a supplier receives an order and issues an invoice detailing the overall cost of the purchase.Buyers will then approve the bill and proceed with the necessary steps to make such payment.
  2. The total cost of invoices is paid to the supplier by the financial institution. In most cases, a discounted rate, which is agreed upon earlier, becomes applicable during payment.
  3. Buyer repays the outstanding amount to the financial institution according to the terms agreed upon.

Businesses also often factor in the acquisition of inventory and other critical items without affecting their working capital. This allows an organisation to maintain a steady financing base while retaining the minimum monetary backing required for continued operations at all times.

Because of these terms, businesses can easily negotiate for better prices while purchasing goods or services from a particular supplier. It helps minimise the overall cost involved in the purchase by a significant margin.

There are several reasons why supply chain finance has become so popular among SMEs and MSMEs across India. SCFs offer a substantial loan amount, where by businesses can avail up to Rs.20 lakh as credit. It can help mitigate any financial shortfall that an organisation may come across during its everyday operations, and help create the essential skills a seasonal business owner should have.

These types of short-term advances are usually unsecured in nature, meaning a borrower doesn’t need to pledge any collateral against the borrowed amount. It further reduces the hassles of availing a credit, along with reducing the risk of liquidation of any mortgaged asset in case the borrower defaults on repayment.

Unsecured loans are also relatively quick to process as lenders don’t need to go through extensive steps for property document verification. It makes the application process significantly hassle-free and streamlined. Moreover, lenders like Bajaj Finserv even provide pre-approved offers to existing customers, which further simplify the entire process of financing.

These offers are available on several financial products, including unsecured credits like business loans, personal loans, etc.You can check your pre-approved offer online by sharing only some essential personal details.

The slow but steady shift towards a connected market has dramatically increased the need to keep in place structured supply chain finance in India. Businesses can quickly chalk out deals and eliminate the worry of straining their working capital with the help of this mode of financing. It also makes it considerably easier for an organisation to raise funds for their business without being burdened by overwhelming debts and repayment clauses.

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Alfred Williams, a distinguished business writer, navigates the corporate landscape with finesse. His articles offer invaluable insights into the dynamic world of business. Alfred's expertise shines, providing readers with a trustworthy guide through the complexities of modern commerce.