Supply Chain Finance is a unique short-term working capital finance. It is basically a mixture of financial instruments, including overdraft and invoice bill discounting, that primarily focuses on optimizing finance and flexibility for the customer. This can be easily accessed by suppliers or dealers who have remarkable business relationships with enterprises to optimize their working capital requirements.

Supply Chain Finance means a set of business and financing practices that forms connections between several parties within a transaction - buyer, seller, - financing institution - for lowering financing costs while improving business efficiency.

What is the Procedure of Supply Chain Finance in India?

Supply Chain Finance is regarded as a financial agreement between the buyer and the supplier or financier. The finance provider settles supplier invoices way ahead of the invoice maturity date at an exceptionally lower financing cost than the supplier's funds. Next, all other parties share the benefit of the lower cost of funding.

The Supply Chain Finance providers of India adhere to the following mechanisms:

  • Firstly, invoices or billings of the shipped or supplied goods or provided services are typically raised by the supplier for the buyer.
  • Next, the supplier sends the invoice to the financier's supply chain finance platform.
  • After that, the buyer approves the invoices on the same platform.
  • Next, the financier pays the supplier against the received invoice.

And finally, the financier debits the amount from the buyer's account during invoice maturity.

Please note that this unique arrangement lets the buyer negotiate better terms and prices with the supplier.

Benefits of Supply Chain Finance System

Within the entire system, all three stakeholders stand to gain. Here, we have enlisted the benefits acquired by the supplier, buyer, and Supply Chain Finance:

Benefits Acquired by the Seller or Supplier

  • The supplier gets credit at remarkably lower rates than that of the working capital loans.
  • They obtain funds earlier than the invoice due date for utilizing working capital requirements.
  • Automation effectively reduces operational costs.
  • Improved cash flows.

Benefits Acquired by the Buyer

  • The funds can be used for working capital until the invoice is due.
  • Extended time for invoice payment.
  • Opportunity to acquire better assets.
  • Availability of exceptionally higher capital at remarkably lower rates compared to term or working capital loans.

Benefits Acquired by the Supply Chain Finance

  • Quick asset building and fee revenue.
  • Diversification of risk.
  • Thoroughly defined movement of goods enables better evaluation of the requirement of capital.
  • Improved opportunities for cross-selling assets.
  • Clear-end dues ensure lower risks of diversion of funds.

Please note that both banks and non-banking financial companies offer Supply Chain Finance. The sectors or focuses that largely prefer this financial instrument are FMCH, agro, commodities, electronics, electrical, and consumer durables.

Types of Available Supply Chain Finance Services

Some of the most common types of Supply Chain Finance services are:

  • Export and Import bills for collections
  • Letter of Credit
  • Import and Invoice financing
  • Export Letter of credit advising
  • Performance bonds
  • LC checking, negotiation, confirmation, and safekeeping
  • Shipping guarantees
  • Pre-shipment, export finance, etc.

What are the Documents Required to Avail of Supply Chain Finance?

The requisite documents for availing Supply Chain Finance vary from one business to another. However, you need to submit some of the basic documents, including:

  • Recent bank statements
  • Identity Proof / Address proof for the owner as well as business
  • Invoices for the last three months
  • Recent VAT / GST documents
  • Sales ledger details for vendor

What are the Instruments of Supply Chain Finance

Some of the instruments of Supply Chain Finance are:

Inventory Finance:

It enables the seller to hold goods in a warehouse for buyers until the goods are no longer required.

Reverse Factoring:

This unique financial instrument permits sellers to sell their drafts relating to a specific buyer to a bank at a discounted rate. It is granted instantly after the buyer approves them.

Purchase Order:

It is an order widely available to the seller based on a purchase order received from a buyer.

What are the Features of Supply Chain Finance?

Some of the most compelling features of Supply Chain Finance are:

Collateral-free Financing

The best part of Supply Chain Finance is that you can acquire options for collateral-free loans. Thus, it takes away the pressure from you to pledge your assets to finance your supply chain.

High-Value Loans

With Supply Chain Finance, you can seamlessly procure higher-value finances that can address your business's supply chain requirements. You can do everything from procuring raw materials to managing logistics.

Quick Loan Approvals

Supply Chain Finance from Piramal Finance will efficiently ease the procedure with quick loan approvals.

Online Account Access

You can access your Supply Chain Finance account online at your convenience.

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