From producer to seller to buyer, we’re all connected in the supply chain. Keeping the links in this chain stable is increasingly important, especially when it comes to financial stability.
Think of the 21st century supply chain as an ecosystem, where each piece of this complex puzzle is dependent upon every other piece. That means that even if you’re on the buying side of the transaction equation, the ability to satisfy your customers’ demands depends, to a great extent, on the financial stability of your suppliers.
Suppliers need options when it comes to financing.
How can suppliers maintain a healthy cash flow so that they can not only satisfy their customers, but also scale their own businesses faster and with confidence? The answer may be channel finance, where suppliers are able to access the funds necessary to free up their working capital.
Once the nearly exclusive domain of banks and large credit institutions, channel financing is now being offered by a wider range of businesses, from venture capitalists to private equity firms to large corporations to business service solution providers. These providers have made it possible for suppliers who may not have been able to get the funds they needed from banks in the past to now do so. Without that, many of these network sellers would not have the financial wherewithal to ramp up their business and increase capacity.
The 6 benefits the supply chain realizes through channel finance.
But getting the funding is only one benefit, though a major one, of finding and working with the right channel finance provider:
- Faster Access to Working Capital – Channel finance providers provide payment to suppliers faster than their customer terms might dictate. There is a movement taking place where buyers are trying to push payment terms further and further out. Channel finance providers can sit in the middle and pay the supplier on terms that work for them while allowing the customer to pay on their preferred terms
- Turnover of Credit and Collections – The biggest risk to suppliers is not receiving payment for goods sold. When the channel finance provider takes responsibility for confirming the credit-worthiness of an account and collecting the payments due, the suppler receives the additional benefit of lower administrative costs.
- Lower Administrative Costs – Consider how much time is spent on verifying a customers’ worthiness and chasing payment. That’s not the best use of employee time; instead, with the risk management being assumed by the channel finance provider, a supplier’s employees can now focus on higher value tasks that lead to building a better business..
- Better Customer Relationships – Friction over payment terms and invoice disputes are two major points of contention that can harm a B2B relationship. With the channel finance provider acting as the middleman, payment term friction is eliminated because the supplier gets paid on its preferred terms and the buyer is able to pay on its preferred terms. From a dispute perspective, any disputes or payment issues are between the channel finance provider and the buyer, thus removing the potential for customer dissatisfaction with the supplier. Better relationships often lead to more business and stronger, longer lasting partnerships..
- 24/7 Visibility – With incoming and outgoing payments recorded in full with a complete audit trail, both suppliers and buyers can stay up-to-date on transaction statuses and cash flow. Visibility and knowledge allow each party to optimize their working capital.
- Elimination of Paper and Manual Processes – This is another benefit that buyers and sellers can realize. Since all of the processing of POs and invoices is automated and completed through the channel finance provider’s solution, the burden, inefficiencies, and potential mistakes that can result from human error are gone. The result is a reduction of administrative costs for everyone.
B2B relationships deal with enough complexity as it is. When channel finance enters the picture: suppliers can focus on growing their business, whether through increasing inventory or generating new customers, and customers can focus on their core competency with a clear picture of their available working capital.
Learn more about channel finance and how it can add greater stability, confidence, and knowledge to your commerce network.