What is Channel Financing and How it can Benefit your Business?

In the present economic landscape, distributors play a crucial role in the efficient supply and distribution of goods. They provide valuable services to producers, wholesalers, and customers beyond product sales.?

What's particularly encouraging is that distributors today have access to financial loans that facilitate their professional growth. Distributors can secure the necessary funds with channel financing and optimize their finances.???

According to MarketsAndMarkets, the global lending market is projected to reach USD 20B by 2026. This encompasses various lending segments, including corporate loans, mortgages, and consumer loans. The lending market comprises traditional financial institutions like banks, credit unions, alternative lenders and fintech companies that have emerged in recent years.??

Projections for the growth of the lending market in the future have been highly optimistic. Technological advancements, changing consumer behavior, and the increasing demand for credit are expected to contribute to its expansion. However, it's important to note that these projections are subject to market dynamics and economic conditions.??

This article will discuss Channel Financing and how dealers can use it to optimize their finances.??

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What is channel financing???

Channel financing makes it simple and inexpensive to acquire capital. Using Channel Financing, financiers such as banks and NBFCs can provide the funds buyers need and maintain a smooth supply chain flow. Cash credit, overdraft, bill discounting, vendor financing, invoice financing, PO financing and other products are some items covered under channel financing.???

Channel financing is a financing solution that facilitates the flow of funds between buyers and the corporate’s(Anchor) lending partners in a supply chain. In traditional financing methods, anchors often have to wait weeks or months to receive payment for goods and services provided to buyers. This delay in payment can affect the supplier's cash flow and hinder their ability to finance their operations effectively.??

To tackle this obstacle, anchors offer cash discounts, a financial incentive to encourage distributors to make early payments for the goods they purchase. These discounts range from 0.5% to 3%. Cash discounts can significantly affect channel financing, benefiting both anchors and distributors. Distributors can unlock many benefits for their business by taking advantage of these discounts.???

Channel financing provides distributors with access to financing against their outstanding invoices. Once an invoice financing request is processed and approved by the financier, it pays the corporate the value of the invoice upfront, allowing the distributors to avail cash discounts. Once the bank has approved the financing request, the money is transferred to the corporate’s account.??

While this money is being transferred to the corporate’s account, if there is a Cash Discount given by the corporate, NBFCs will deduct the discount and transfer the rest to the corporate’s account. Distributors evaluate and post a thorough under-writing process, allocate credit terms to each distributor within the network. These credit terms may differ for each distributor. Once the credit period is over, the dealer is liable towards repaying the loan amount, along with the accumulated interest on the principal amount.?

Benefits of Channel Financing:??

Channel financing provides several benefits for both distributors and anchors. For corporates, access to financing against outstanding invoices can help them improve their cash flow, reduce credit risk, and lower borrowing costs. For borrowers, it offers cash discount benefits and favorable interest rates and credit periods. Channel financing allows lenders to have payment control with auto-reconciliation features.

How Does Channel Financing Benefit Borrowers???

• Flexible Credit Periods and Cash Discount Benefits: Borrowers can maintain or extend credit periods while enjoying cash discount benefits. This provides the flexibility to take advantage of early payment discounts.??
• Enhanced Liquidity for Business Growth: Channel financing boosts borrower liquidity, empowering them to fuel business growth. With access to tailored financing options, borrowers can effectively manage cash flow, invest in expansion, and increase sales volumes.??
• Choice of Best-in-Industry Financing: Borrowers can select financing options from leading banks and lenders. This ensures competitive credit terms, attractive interest rates, and flexible repayment structures for specific business needs.??
• Seamless Borrowing and Repayment: An integrated platform streamlines the borrowing and repayment process, enabling borrowers to easily apply for financing, track application status, and manage repayments. This enhances convenience and efficiency for borrowers.??

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What is in it for the corporate???

• Enhanced Liquidity for Increased Sales: Channel financing provides corporates with enhanced liquidity, enabling them to invest in their sales efforts and drive higher sales volumes.???
• Accelerated Cash Flows and Reduced Working Capital Costs: Channel financing speeds up cash flows by facilitating faster distributor payment cycles. This massively reduces the Days Sales Outstanding (DSOs) and lowers working capital costs.??
• Mitigated Credit Risks and Improved Cash Flow Predictability: By utilizing channel financing, corporates can transfer credit risks associated with distributor payments to financial institutions. This helps reduce the impact of potential payment delays or defaults, improving cash flow predictability and providing more financial stability.??
• Streamlined Business Processes and Operational Efficiency: Channel financing often incorporates an integrated platform that streamlines business processes and workflows. This improves operational efficiency, simplifies documentation and administrative tasks, and enables corporates to focus on core sales activities.??
• Stronger Partner Relationships and Competitive Advantage: By offering channel financing options, corporates strengthen their relationships with distributors. Providing access to financing solutions positions corporates as valuable partners, supporting distributors' working capital needs and fostering long-term collaboration.???

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How Does Channel Financing Help Lenders??

• Improved Customer Onboarding: By utilizing business volumes, payment trends, and credit scoring indicators, lenders can streamline and expedite the customer onboarding process. This enables lenders to assess the creditworthiness of potential borrowers more accurately.??
• Enhanced Payment Control and Auto-Reconciliation: Channel financing solutions provide lenders with payment control mechanisms and automated reconciliation processes. Lenders can monitor and manage loan repayments effectively, ensuring timely payments and minimizing the risk of delinquencies.???
• Digital Dunning for Timely Loan Payments: Embedded digital dunning features in channel financing platforms serve as reminders and notifications for borrowers to make their loan payments on time. This proactive approach improves payment compliance and reduces the likelihood of payment delays or defaults.???

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How Does FinEX Help You Apply for Channel Financing???

FinEX is a powerful SaaS-based platform that makes it easier for corporates to facilitate invoice financing that bridges the gap between the borrowers/distributors and FinEX's lending partners. In particular, FinEX streamlines the process of applying for channel financing, which helps dealers obtain working capital by financing their invoices to make timely payments to the corporate.??

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Integration with the Corporate's ERP System:??

FinEX's first step is integrating with the corporate's Enterprise Resource Planning (ERP) system. This integration allows FinEX to access and extract data related to the corporate's open invoices, streamlining the subsequent financing process.??

Invoice Payment:

One of the key benefits of using FinEX for channel financing is that it provides a simple and intuitive interface for dealers to connect with lenders and a simple and intuitive interface for dealers to view their invoices, and pay them as well on the same platform with a simple click-to-finance button, assured with favorable credit terms from our partner lenders. FinEX can facilitate a Channel Financing program that that works on either of the mechanisms -- may it be auto-pull or dealer consent based.??

Payment Reconciliation:??

Upon receiving payment for the financed invoices, the corporate's ERP system is updated to reflect the reconciliation of the invoice payments. This ensures accurate financial record-keeping and visibility into the corporate's financial position.??

Dunning Process for Loan Repayment:??

Simultaneously, a dunning process is triggered within FinEX to ensure timely loan repayment to the lender. The dealer receives notifications and reminders regarding the loan repayment obligations, ensuring compliance with the agreed-upon terms.??

Digital Onboarding:?

The platform offers digital onboarding, which means dealers can quickly sign up and start the application process online without needing paper-based documentation. This can save both time and money for dealers and lenders alike, as it eliminates the need for manual processes and reduces the risk of errors.????

Conclusion??

In today's economic landscape, channel financing has emerged as a vital tool for distributors to optimize their finances and enhance working capital. With the support of loans, distributors can effectively manage cash flow, access working capital, and foster professional growth. FinEX, a powerful SaaS-based platform, streamlines the channel financing process, revolutionizing how dealers obtain working capital by selling their invoices to lenders.??

The platform facilitates invoice payment reconciliation, ensuring accurate financial record-keeping and visibility into the corporate's financial position. By integrating with the corporate ERP system, FinEX simplifies the retrieval of open invoices, providing a transparent overview of outstanding payments. Additionally, FinEX triggers a dunning process to ensure timely loan repayment, fostering responsible financial management.???

Are you a corporate looking to provide Channel Financing to your distributor network, to optimize your finances and enhance working capital? Visit globalpayex.com to learn more and start leveraging the benefits of FinEX for streamlined and efficient channel financing.?