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 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.
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What is Working Capital?
Working capital is the difference between the total number of assets and the total number of liabilities in a company. This amount is spent on executing day-to-day operations in a business. As a result, it is used as an index to measure the health of a company. Enterprises with high working capital are often strong businesses.
What are the Uses of Working Capital?
In most situations, working capital is used to run operations. A well-managed business will also use it’s working capital to achieve growth. For instance, an online seller would spend to add a new type of product to his portfolio. A retailer may liquidate funds to increase his store size by adding a new section to his outlet.
Other uses of working capital include:
• Equipment and inventory purchases
• Hiring, salary payments and employee training
• Unforeseen expenses
What are the Outcomes of Low Working Capital?
Responsible financial management may help companies secure higher levels of working capital. On the contrary, poor management of capital could result in the following issues:
• Bankruptcy risk: In the case of negative working capital, SMEs use money received from creditors to finance business operations. Businesses run the risk of bankruptcy due to the lack of sufficient income to counterbalance the expenditure.
• Lack of investment opportunities: Investors are less likely to consider companies which regularly have low or negative working capital. This demonstrates that the company is not being run effectively.
• Missed growth opportunities: With large amounts of positive working capital, businesses will have money to spend on pursuing growth. With negative or low working capital, businesses may find it difficult to capitalize on investment opportunities. Low working capital could have stifling effects on the ambitions of any businessman.
• Trade discounts: Many suppliers will offer substantial discounts if they are paid on time. Low or negative working capital can make it difficult to meet payment obligations which, effectively, increases the cost of inventory.
What are the Ways of Accessing Working Capital Finance with Capital Float?
At Capital Float, we offer a wide range of financing options for small and medium scale businesses. By providing quick and easier access to funds and with flexible repayment options, we can give businesses the right financial support to help them achieve their next milestone.
We offer Online Seller Finance to e-commerce sellers who operate on online marketplaces. Through a simple online process, the seller can apply for a loan and receive funds in three days. The loan tenure ranges between 90-180 days and is repaid on a biweekly basis. This loan is ideal for sellers who are looking at expanding into other marketplaces, increasing their product portfolio or purchasing higher volumes of stock.
Term Finance is applicable for traditional businesses that have been operating for three years. The loan tenure varies between six months to three years. Small scale manufacturers, retailers and distributors can use this loan to meet short-term investment requirements and finance inventory purchases.
Invoice Finance helps SMEs convert their invoices into cash, that can be channeled into financing business operations. This loan product has an exclusive feature of one-time bullet repayment mode, which might suit the cash-flow needs of several SMEs.
We also provide Merchant Cash Advance which will interest vendors using point-of-sale machines with consistent card settlements. Merchants can receive working capital finance of up to 150% of their monthly card swipes within three days of the loan application.
Our unique product called ‘Pay Later’ is a rolling credit facility, that enables the borrower to make multiple drawdowns within a predefined credit limit. The borrower pays interest on the utilized amount and not on the entire limit. By repaying the amount utilized, the borrower resets the credit limit, thereby instantly availing the facility in whole. Click here to read more about ‘Pay Later’. You could read about the product features by clicking here.
Oct 24, 2018
We have created ‘GST- An Overview, Its Impact & Significance’ as a comprehensive GST handbook comprising of every aspect related to this new reform, with a special focus on Small and Medium Enterprises (SMEs). Starting with the salient features, this GST ebook takes readers through the three main components of the tax which eliminate the cascading effects of taxation. Further, the registration process, four-tiered tax structure, the benefits as well as challenges are explained in the GST whitepaper.
How this Whitepaper will help simplify GST for you
- Revised GST Rates Update
- Industry-wise Analysis of GST Impact
- Clear, Brief Descriptions of Key Aspects
- Easy Roadmap to Implement GST Changes
- Business Advice by Financial Experts
Oct 24, 2018
As an organization, we are out to ‘Break Limits’. We have arrived at the august club of ‘fastest growing financial services organizations’ in the shortest possible time, but that hasn’t been down to all work and no play. We have taken a ‘human first’ approach —we have a fun, personal side that we often tap into to unleash energies that are waiting to find expression.
At heart, an organisation is usually a reflection of its employees. People from different parts of the country, from different verticals and industries, come on board to join forces as a team, out to achieve common goals. What’s the secret sauce that binds them in this mission?
Capital Float Cookout
India is a myriad mix of colours, culture, terrain, weather and of course food! It is not surprising that Indians are by nature great foodies and passionate food critics. Quality, taste and creativity are found in abundance, and bonding over food is in our DNA. Perhaps this was the reason why our people resources team decided to spice up life by organising a free-for-all cookout. Going by the results, they were well on target!
Held in Delhi and Chennai, the Capital Float Cookout was a food fiesta sprinkled with healthy doses of competition, cooperation, fun and, of course, food. Our Delhi office saw a “fireless cooking competition”, which involved 15 minutes of introduction, 45 minutes of cooking and 15 minutes of evaluation. It takes a lot of creativity and courage to cook up dishes that haven’t seen “fire”. The session in Chennai was colourful with a lot of variety. The Chennai office fielded five teams of seven members each and cooked up a storm of three to four dishes per team. The top three earned compliments, culinary fans and Amazon gift vouchers.
In all of this, a culture was created and seeded—a culture of camaraderie, fun, togetherness, friendship and cooperation.
Spirit of Fun and Togetherness
Winners were not the only ones to stand out in these cookouts. What stood out was the fiercely competitive zest of the people trying to help their own competitors. What stood out was the happy backslapping among the teams and the sharing of food that was made for what was supposedly a “competition”.
Language barriers, functions, departments and designations all melted in the cooking pot, creating a cohesive team. And when a bunch of individuals come together as a team, there’s seldom any competition within. In the process, the team’s human side stands out—a sense of humour here; a deft salad chef there; an unexpected leader, musician and dancer. Interesting stories about each person emerge and amalgamate to create our unique culture – a culture of togetherness.
Moving forward, we will be organising the ‘cookout’ in various other office locations, beginning with Mumbai in a couple of weeks. This activity is surely going to stay, appeasing the palates of our team members and stirring a broth of excitement across the organization.
Oct 24, 2018