When businesses don’t have to worry about chasing invoices, they can focus on growing their business. That’s where channel finance comes in.
This blog appeared previously on the Corcentric Website.
Working capital is the lifeblood of any business. But as credit tightened after the recession of 2008, small and medium-sized businesses (SMBs) found getting the upfront credit necessary to conduct business became more and more difficult. And that directly affected the business’s cash flow. Enter supply chain finance (SCF), an offering that’s been called the “silver bullet for working capital.” Quite simply, SCF is a situation in which suppliers sell their invoices at an agreed-upon discount to a financial institution or to a technology provider that has partnered with a financial institution for this purpose. The buyer then pays the provider directly. Since suppliers that get SCF usually get their credit and cash at a lower rate than they would when normally incurring debt, and certainly earlier than they would if they billed the customers themselves, suppliers have the liquidity and cash flow necessary for business growth.
Channel finance is a business-to-business subset of SCF, wherein manufacturers sell their product to businesses solely or primarily through a distributor network; so ensuring that the distributor has a steady and less expensive cash flow is vital for the well-being of the manufacturer itself. Ongoing cash flow means that a distributor can focus on growing the business which ultimately means buying more product from the manufacturer. This, in turn, strengthens the relationship between the entities. When it comes to the customer side, the relationship between customer and distributor is also improved. Because the channel finance provider takes the risk of collecting money rather than the distributor, any measure of toxicity that might ensue from chasing payment is eliminated.
Technology and automation have transformed this method of financing, and manufacturers are now turning to solution providers who can not only facilitate the financing, but also supply much needed transactional and historical data which can help inform spend for both the manufacturer and distributor. When a customer makes a purchase, an invoice from the distributor is entered into the provider’s system, including all pertinent information, including anticipated delivery date, contract pricing, customer coding, etc. The distributor is paid for that invoice within an agreed-upon timeframe minus a small discount to the provider. The system then creates an e-invoice for the full amount which is delivered to the customer, who then pays that invoice directly to the provider. All invoices and payments are digitally recorded and archived; offering 24/7 visibility into all document status for a complete audit trail.
The customer, as part of this B2B ecosystem, can have confidence that the invoice is accurate and, payments can be made on-time or earlier and customers can realize any potential discounts. So customers, like distributors, are better able to manage their cash flow as well.
It’s easy to see how channel finance can benefit all players in a complex B2B ecosystem:
WIN – Manufacturers benefit with visibility into a loyal, motivated, and financially-stable dealer network
WIN – Distributors have the confidence necessary to make larger sales and purchases, and thereby invest more in their business
WIN – Customers can scale their business faster through better working capital management.
Learn more about Channel Finance and Accounts Receivable automation