Mon. May 20th, 2024
supply chain financing

Banks and other financial institutions have never fully embraced the concept of lending liberally to Supply Chain Financing. Working capital has forever been in short supply in the case of SMEs, small scale suppliers, and distributors. The interest rate is quite high even when they do, eating away a sizable portion of the businessman’s profit. With limited working capital, players at the bottom of the pyramid find it extremely difficult to expand their business imprint and market penetration.

Few people in the know believe that the pandemic is to blame for the current working capital crisis. This is partially correct. The truth is that SMEs and other players of their calibre have been suffering from a lack of working capital long before the pandemic was even a thing. Small distributors and suppliers’ businesses are invariably cash-strapped. They have been forced to compromise for a long time because they cannot find convenient access to capital when needed.

Manufacturers have been observed to step in to alleviate the liquidity crunch frequently their distributors are dealing with. This makes sense, given that manufacturers rely on distributors to mobilise inventory. Working capital loans and other processes that can help keep the business’ supply chains running smoothly can help manufacturers alleviate the working capital crunch with their distributors with Supply Chain Financing.

The solution is supply chain financing:

Supply chain financing can enter the picture and assist stakeholders in obtaining funds early on, which they can then use to finance extra product procurement or for expansion. When it comes to giving easier credit access to minor players, supply chain financing helps break the code. It can also help bridge the working capital gap for distributors and suppliers who do business with large corporations with lengthy payment cycles.

A shorter cash conversion cycle translates into greater business predictability and control. A faster cash turnaround time also promotes business growth by giving the distributor or supplier more leeway to earn higher amounts through his margins, even if the profit margin is small.

On the other hand, supply chain financing can be integrated seamlessly and smoothly if the business being financed is amenable to digitisation and technological updates. When it comes to removing bottlenecks in supply chain financing, technology plays a critical role in overcoming those.

Several supply-chain financing portals go beyond the basic premise of funding logistical operations. Their products are intended to improve treasury management and ERP reconciliation capabilities.

Treasury administration

Manufacturers can improve their risk management practices with their cash reserves to generate more value for themselves and their distributors. Optimal supply chain management can dramatically alter a manufacturer’s cash management, and the funds can then be used to finance working capital loans for distributors. Manufacturers from Supply chain financing can thus kill two birds with one stone. First, their businesses are more likely to grow faster than a non-financing manufacturer, and second, it injects greater efficiency into the supply chain and helps improve their distributor’s clout.

New-age supply chain financing platforms provide tailored solutions that automate receivables and maintain payables with the click of a button. In addition, they generate data intelligence in terms of fund utilisation. Furthermore, these platforms provide access to the credit histories of distributors and suppliers, which can assist manufacturers in making better credit disbursement decisions.

ERP synchronization

Technological advancements accelerate and automate ERP processes, resulting in smoother operations in your systems engineering. Adopting technology in one’s ERP process is critical if one wants to streamline cash flows that can be used to alleviate distributors’ working capital issues. Cutting-edge technology solutions can easily integrate with a manufacturer’s existing ERP.

Supply Chain Financing is a field where fintech platforms have taken the lead. However, one critical requirement for a manufacturer is that his company adhere to the technical standards established by the fintech platform. Manufacturing companies that have relied on antiquated manual processes must evolve to the next technological frontier for easy integration.

In Conclusion:

Manufacturers have a significant role in developing the state of supply chain financing and efficiency when banks and other financial institutions have been hesitant to finance distributor and supplier operations. Manufacturers can take the lead by reducing the time it takes to settle invoices or offering extremely competitive working capital loans. The value embedded here should be viewed through the lens of interest earned on such working capital loans and the goodwill accretion that comes from guiding small SMEs on a higher growth trajectory.

A manufacturer’s benefits from supply chain financing are numerous, and enormous value can be extracted for the business in the short and long terms. Technology plays a very strategic role in this mix. Any manufacturer who puts their business on the path of technological evolution can also create the most fertile ground for the growth of distributors and suppliers under their aegis.

By Manish