Convenient Supply Chain Financing Creates Resiliency In The System

Supply chain finance is an important but often underrated aspect of supply chain management. At its core, supply chain management is the management of the flow of material / services, data and money through a network of assets from the point of origin to the point of final consumption (and back). Natural disasters, geo-political crisis and financial crisis faced by the world over the past decade have forced companies to move away from only optimizing their supply chains to making them more resilient. For a supply chain to be truly resilient, all risks associated with the asset base managing the flow (i.e. the material & services, data and money) must be negotiated intelligently, keeping in mind that each one represents a point of failure or a point of opportunity.

Industries are habituated to ignore the significance of supply chain financing. While there has been a lot of collaboration between different constituents of supply chains, they usually center on inventory. However inventory and finance are intrinsically linked; increased players in the supply chain machinery is directly proportionate to the increased complexity in the financing of the process. This is especially true in a country like India, where the number of intermediaries, in many cases outnumbering the actual value addition points, poses a complex problem from the paradigm of supply chain finance and more importantly supply chain resiliency.

As with anything in a complex supply chain, the bulk of the power resides in a few constituents (maybe the retailer or the manufacturer depending upon the specifics of the value chain). These companies understandably look out for their own interests especially when it comes to supply chain finance. Though concepts like JIT (just in time) inventory and quick turnaround times from order-to-delivery have reduced inventory levels held drastically, most companies still hold onto the traditional 30-45-60 day of credit terms with their suppliers. This puts incredible financial stress on the supplier which in the worst case manifests in poor quality of supply. In the long run, this increases the total cost of ownership for the company, i.e. investment in more stringent QC processes, returns, disruption to the manufacturing process, supplier switching costs etc. Applying the same principles of collaborative thinking to supply chain finance will not only make the overall chain more resilient but also optimize the flows and pass on efficiencies in the long run to the end consumer.

In today’s business environment where “share holder value” is no longer a buzz word but the focus of every corporate board of directors, it might be wishful thinking to expect companies to share their margins or reduce days of credit to suppliers in the interest of collaboration. This is where a third party financial institution plays an important role. By providing liquidity to the supplier on the basis of the credit umbrella provided by the bigger company, the addition of the third party financial institution creates a win-win across all stakeholders involved. This is even more critical in the case of small and medium sized enterprises, which at this point are forced to spend only a fraction of their efforts on innovation and growth.

While some large corporates do have some form of supplier financing initiatives through tie ups with Banks and NBFCs, in most cases the coverage of the initiatives are limited (to some marquee suppliers) and in a larger amount of cases are a generic form of receivable financing based on existing credit policies of the financial institutions, which are out of sync with business realities. It is imperative for large corporates to have a supplier financing initiative for all their suppliers, especially the SMEs to manage their financial risks. In turn it is imperative for the financial institution to have a tailored product which reflects the operating realities of the industry and also the specificity of the supply chain. Collaboration of all three stakeholders, i.e. the large corporate, SME supplier and financial institution will be critical to ensuring a sustainable supply chain finance program.

We live in an interconnected world; therefore large corporates have the responsibility to ensure that their SME suppliers have access to finance, if they truly want to make their supply chains resilient.

Prashant Adhurty

Prashant has 11 years of experience in business strategy and operations, with specific expertise in the areas of project management, supply chain management and business process formulation , across the retail sector, United Nations system & international organizations, telecommunications & high technology, oil & gas and 3rd party logistics. He has successfully managed and delivered projects for clients based out of Europe, the USA, Africa and India.
At Capital Float, Prashant heads Business Development for Supply Chain Financing.

More Related Posts

Card image cap
What Are the Documents Required to Get a Business Loan?

An organisation planning to apply for a business loan must be thoroughly aware of the general application process and the documents that need to be provided to the lender. Security is a top concern for any business today, and no enterprise will want to give copies of their ID and financial papers to questionable entities.

Even when they choose to borrow from familiar banks, the hassles of printing and photocopying documents, submitting them to a branch personally or through a reliable employee and then awaiting approval of their SME loan can be tedious. It discourages many MSMEs from approaching traditional financial institutions for funds. “How to get fastest business loan” while also following a secure procedure is a priority for SME and MSME borrowers.

Fortunately, the expectation of getting a quick business loan can now be fulfilled by FinTech lenders. These digitally active NBFCs have an abridged and systematic online application process, and funds on approved applications are provided in less than a week. Furthermore, they offer loans without requiring the borrowers to pledge any security.

FinTechs do need some documents to sanction any loan. However, businesses only need to submit the soft copies with their digital application. The primary documents required for an unsecured working capital loan or any other SME/MSME loan include:

KYC Documents of Business Owner(s) – PAN Card, passport copy or a copy of any other Photo ID that is recognised by the Government of India

Income Tax Returns (ITR) – The processed ITR document copies for the last two years

Goods and Service Tax (GST) Returns – Processed returns for the past year

Bank Statements – For the previous six months

For some particular loans taken to finance the operations of schools, medical clinics, restaurants, franchises, logistics companies and e-commerce sites, the FinTech lender may need documents specific to these verticals.

As an example, a Pvt Ltd company or LLP that seeks merchant cash finance based on the payments made through cards should also submit its card settlement statements for three months preceding the loan application. On the other hand, sole proprietors (Prop) running their own shops, salons or small restaurants can directly submit their KYC documents, IT returns, bank statements and papers that corroborate the identity of their business.

What then, about the security factor here? That indeed is important – a business loan application should only be sent from a secure website that encrypts all information loaded on its servers. FinTech companies with website domain having a lock symbol and https:// prefix are authentic lenders in the credit market.

If your business has been successfully running for almost three years, and you have been complying with the tax laws of India, your chances of fulfilling other eligibility requirements for an unsecured business loan by Capital Float are high. Just gather the soft copies of documents relevant to your enterprise, and by spending less than 15 minutes on the digital application, you can send a request for the loan. You will also be notified of the approval on the same day, and the funds reach your bank account in the next 72 hours.

Apply for Unsecured Business loan

To know more about our loan granting process, feel free to call at 1860 419 0999.

Oct 24, 2018

Card image cap
7 Ways to Manage Your Business Cash Flows

Two of the main reasons why businesses face challenges are inadequate cash reserves and business finance. Whether the business is struggling or growing, effective cash flow management is absolutely essential and the key to business survival.

There is always a lag between the time a company pays its suppliers and employees and the time it collects payments from customers, which causes issues for the business to remain operational. Once businesses have used a lot of their finances, they may experience a cash crunch that prevents them from paying suppliers, buying materials and even paying salaries, which hinders business growth and success, since most companies usually lose the trust of suppliers and employees in such situations.

SMEs Need Smart Cash Flow Management

Cashflow is basically the movement of funds in and out of your business. Cashflow is called positive when the amount of cash entering into the business from sales, accounts receivables, etc., is more than the amount of the cash leaving your business through monthly expenses, accounts payable, employee salaries, etc. In the reverse situation, the cashflow would be considered negative.

To attain a smart cash-flow management, businesses need to think beyond just their profit or loss and focus on a positive cash flow, which is key for generating profits. Companies need to have enough cash reserves available all the time to pay their employees and suppliers so that production isn’t affected.  Capital Float is a FinTech lending company fulfilling the business loan requirements of SMEs in India. We offer flexible, short-term loans that you can use to purchase inventory, service new orders or optimize cash cycles. Our online application procedure simplifies the application process and lowers the time required for approval. The loan amount is disbursed within 72 hours.

As mentioned previously in this blog, achieving positive cash flows is fundamentally important to the health of the business. Here are some ways in which you can effectively manage your cash flows, leading to higher profits and business growth.

7 Practical Ways to Ensure Effective Cash Flow Management

1.Collect Receivables: There are times when every business has to extend credit to customers, particularly when they are in the growing stage. When you speed up the receipt and processing of receivables, you will experience quick input of cash, further reducing credit cycles that inevitable lead to debt.

2.Opt for Short-Term Unsecured Loans:  Short-term business loans, from FinTech lenders like Capital Float, are the best solution to overcome cash flow problems and meet immediate cash requirements. Unlike traditional lending institutions, which require extensive documentation to process a loan, these lenders use technology to make financing decisions. Applicants can avail a loan amount from Rs. 1 lakh to Rs. 3 crores. If you decide to pay off the remaining balance of the loan earlier than decided, you won’t not be charged any prepayment penalty either.

3.Adopt Easy Modes of Payment: Try to get paid faster by using mobile payment solutions. Many companies, upon selling their products, provide services through which they receive payment on delivery via banking apps on smartphones or tablets with the use of a credit or debit card. In fact, businesses today are actively turning towards card payment devices, where these Point-of-Sale machines, other than offering cashless transactions, become the instruments for availing working capital finance through services like Capital’s Float Merchant Cash Advance.

4.Pay Later Finance: This financial product helps you make regular payments to replenish inventory and keep your business moving. Many a time, businessmen are presented with growth opportunities, but due to a cash crunch, they are unable to capitalize on such opportunities. Even when they try to, the informal lenders charge exorbitant rates of interest, coupled with other unreasonable demands, making it hard to borrow money from them. Pay Later is a predefined credit facility, unique to each applicant, from which the applicant can make multiple drawdowns. The facility can be restored following repayments, making the facility ready for further use. Interest is charged on the drawdowns and not the entire facility.

5.Online Seller Finance: Capital Float has partnered with the largest e-commerce platforms in the country, including Amazon, PayTM, Snapdeal, Myntra, Shopclues, eBay, etc., to help business owners access fast and flexible working capital loans for business operations in India. One of the unique features is that the loan is offered on the basis of the borrower’s monthly sales and projected revenue We use cutting-edge tech-integration, Big Data and decision sciences to assess the borrower’s business.

6.Discounts on Early Payments: Your profit margin might be effected when you offer your customers discounts upon early payment. However, it will surely help in your business’ cash flow management. Incentivizing customers will encourage them to make payments earlier than the billing cycle, which will be advantageous for your business.

7.Increase the Company’s Sales: This is indeed the most traditional method of increasing cash flow, but it might not always work. Try to attract new customers and sell additional goods or services to your existing customers. You should remember that while new customer acquisition increases sales, selling more to existing customers is cheaper and leads you to increase your profit margin, generating more cash.

Oct 24, 2018

Card image cap
A digital prescription for the pharma industry

Must explain to you how all this mistaken idea of denouncing pleasure and praising pain was born and I will give you a complete account of the system, and expound the actual teachings of the great explorer of the truth, the master-builder of human happiness.

Oct 24, 2018