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Channel Financing: All You Need To Know About Maintaining Cash Flow

Updated on: 29 Aug 2024

Maintaining cash flow is one of the priorities of any business owner, irrespective of the scale of the enterprise. This is why channel financing is becoming a well-known solution for the unhindered productivity of many businesses.

It is an innovative solution that provides working capital to the manufacturer or supplier without adding a burden on the customer. With third-party involvement, a smooth transition takes place for convenient business practices.

Read on to learn the meaning of channel finance, how it works, its features, benefits, eligibility and more.

What is Channel Financing?

Also called supply chain finance, this is a lending facility that provides working capital to businesses through different channels. In simple terms, it is a small instant business loan that allows you to arrange funds before the bills are cleared.

Opting for this, you can lower your credit cycle to zero by arranging upfront cash for your raw material, delivery, production and other expenses. This way, you can improve the supply chain management system without digging into your savings.

Channel Financing Example

To better understand how the channel finance facility works, consider an example. Assume ABC Company is a supplier of a product, and XYZ Company places a bulk order. Now, to manufacture the product, ABC needs raw materials, a workforce, funds for transportation, and other miscellaneous expenses.

After calculating the complete cost of production for the order, ABC raises an invoice. They send a copy of the invoice to the financing company and the customer, which is XYZ Company in this case.

The lender will verify the documents for loan approval. If XYZ Company accepts the invoice, the loan is then disbursed. Using these funds, ABC Company will manufacture and deliver the product to the XYZ Company. XYZ Company will pay the cost to the lender, closing the loan.

Features and Benefits

The following are some reasons why channel financing is beneficial for all the entities involved in the supply chain management system.

Swift Approval

With the majority of lenders allowing online applications, you can apply and get the funds within a few hours. This helps you save time and get funds quickly. However, it is important that you keep all your documents ready and double-check all details mentioned.

Zero Collateral

Channel financing is an unsecured loan, which means you do not have to provide any valuable asset to get the funds.

Increased Efficiency

In business, delayed payments are common. If you rely on a customer to clear the invoice to start production for next order, your business can slow down. By opting for this facility, you can avoid cancelling orders due to insufficient funds.

Convenient Cash Flow

It gives you a head start on your production without relying on the customer to make an advance payment.

Easy Repayment Plan

The process is very organised, as lenders maintain cash flow without adding financial liability to either entity involved. The customer is aware of the total payable cost and can easily pay the complete amount after delivery. This also maintains transparency for them while reducing the risk for manufacturers.

Eligibility and Documents Required

While all channel finance companies have their specific policies, here are some criteria that you can consider for most lenders.

Must be a micro, small, and medium enterprise
Must have a business vintage of at least 3 years or as per the policy of the lender
Must meet the minimum turnover limit of the lender
Must be an Indian resident
Must be between 21 and 65 years of age

In addition to that, you need to provide the following documents at the time of application. Keeping this list handy helps you save time in the process and get quick approval.

KYC documents, such as PAN card and Aadhaar card
Certificate of business
Income tax return for last year
Profit and loss statements
Address proof of business
Bank statement

Thanks to the digital application process and fintech advancements, it is easy to compare and choose the best option for borrowing. This way, you can manage all your financial needs without hassle. Similarly, you can arrange funds for your personal requirements with top lenders online.

Fibe Instant Cash Loan is one such option that gives you up to ₹5 lakhs without collateral through an online application. We have easy-to-meet eligibility criteria that allow us to extend loans to applicants who are not eligible for traditional bank loans. This is because we rely on an alternative credit scoring system. Thus, you can apply even without a high credit score.

Enjoy swift disbursal, minimum paperwork, affordable tenure, and a customisable repayment plan. You can also close the loan before tenure ends without any penalties. Apply now by downloading our Personal Loan App or registering on our website!