Supply Chain Finance (SCF) is reshaping India’s financial sphere, helping businesses tackle supply chain issues. In a huge and diverse country like India, sound financial practices can either elevate or erode a business. With digital platforms, the SCF world has made noteworthy progress, becoming more user-friendly and advantageous for businesses, both big and small.
What is Supply Chain Finance?
SCF is a set of tools meant to streamline cash flow and offer operating capital to supply chain businesses. It involves banks providing short-term loans enhancing financial stability and efficiency of suppliers and buyers in the chain.
The Process of Supply Chain Finance in India
The SCF procedure includes several steps:
- Invoice Submission: Suppliers give their invoices to the bank or SCF platform.
- Verification: The bank confirms the invoices’ genuineness.
- Financing Approval: After verification, the bank makes an early payment to the supplier, usually a fraction of the invoice value.
- Repayment by Buyer: The buyer compensates the bank for the invoice amount on the due date.
Example of Supply Chain Finance
Consider a small-scale fabric-maker in India delivering to a renowned retail store. Traditionally, the merchant waits 60-90 days for payment after delivery. With SCF, the invoice goes to an SCF platform like Credlix, the merchant receives early payment, hence, maintains cash flow. The retailer pays the SCF platform on the due date, everyone gains from the enhanced liquidity and functional efficiency.
How does India benefit from Supply Chain Finance?
Improved Cash Flow
SCF primarily grants more cash flow. Suppliers receive funds before the traditional payment cycle, ensuring smooth functioning of their business.
Reduced Financial Costs
Using SCF often secure better loan rates than classic loans or credit lines, impacting their economic health positively.
Enhanced Supplier-Buyer Relationships
Connection SCF builds sturdier associations between suppliers and buyers. Quick payment benefits suppliers, while buyers can debate improved terms and rely on a stable supply chain.
Increased Competitiveness
Businesses using SCF can channelize the better cash flow into their operations, allowing growth, creativity, and gaining an edge in the market.
Types of Supply Chain Finance
Receivables Discounting
Invoice discounting includes selling bills to a bank at a markdown. This gives immediate cash to the provider, with the bank collecting the full invoice value on the due date.
Reverse Factoring
In backward factoring, the buyer arranges for early payment to the supplier. The buyer then pays back the bank on the original due date, usually to support their suppliers.
Inventory Financing
Stock finance allows businesses to convert their stock into a guarantee for loans. This type of SCF assists businesses in maintaining liquid assets while holding substantial stock.
Payables Finance
Payable finance involves the buyer lengthening payment timeline with suppliers while ensuring they receive early payment from a bank. This enhances the buyer’s working capital, without affecting the suppliers.
Also Read: An Economic Winter for MSMEs? Is Your Supply Chain Finance Prepared?
Recent Trends and Numerical Facts in Supply Chain Finance in India
Digital Transformation
Digital transformation in SCF has shown significant improvement. Market leaders like Credlix streamline procedures and enhance usability. By 2024, digital SCF platforms gained a 30% increase in usage by small and medium-size firms in India.
Growth of SCF Market
Indian SCF market is estimated to see a 20% CAGR from 2023 to 2027. This expansion is powered by increasing awareness and the need for effective working capital management.
Government Initiatives
The Indian government introduced several initiatives promoting SCF. Trade Receivables Discounting System (TReDS) aims at improving fund flow to the MSME sector. By 2024, over 10,000 MSMEs have taken advantage of TReDS platforms, indicating the government’s dedication to enhance SCF.
Challenges in Implementing Supply Chain Finance in India
Limited Awareness
Despite obvious benefits, many businesses, especially in rural areas, lack SCF knowledge. Education and outreach programs can bridge this gap.
Credit Risk
Credit risk is a major concern in SCF, especially for banks, making verification of suppliers and buyers’ credit status crucial.
Regulatory Hurdles
For SCF providers, understanding legal requirements can be complicated. Clearer regulations can encourage SCF growth.
Future Outlook for Supply Chain Finance in India
The future of Indian SCF is hopeful, with several major developments:
Increased Adoption of Blockchain
Blockchain is expected to bring a revolution in SCF by providing better visibility, security, and efficiency. Blockchain may enable real-time tracking of transactions and decrease risk of fraud.
Integration with E-commerce
Interaction of SCF with e-commerce platforms is a growing trend. E-commerce behemoths in India offer SCF solutions to sellers, improving liquidity and encouraging growth.
Enhanced Collaboration
Collaboration between Banks, technology providers, and businesses will be key in SCF expansion. Partnerships can result in pioneering solutions and extended access.
Also Read: What Can CFOs Do to De-Risk Supply Chain Finance in 2021
Conclusion
In India, SCF is a potent instrument that can change the financial circumstances of businesses. By streamlining cash flow, lessening economic strains, and promoting supplier-buyer relations, SCF provides a competitive advantage. Pioneers like Credlix are paving the way, offering innovative solutions, making SCF beneficial and accessible for all sectors. For businesses desiring to enhance their financial stability and functional efficiency, adopting SCF is a strategic choice. As the SCF world continues to evolve, staying knowledgeable and utilizing appropriate platforms will be vital. Credlix, with its leading-edge digital solutions, is prepared to assist businesses in finding their way in this vibrant landscape.
How Credlix is Revolutionizing Supply Chain Finance in India?
Credlix, an Indian supply chain finance solutions leader, is known for its state-of-the-art products. They aim to boost cash flow, lessen financial hazard, and cement supply chain links. With its digital-focused, customer-centric strategies, it’s no wonder many companies trust Credlix to revamp their supply chain finance division.
Credlix Solutions
- Digital Platform. It’s a top-notch system that makes the supply chain finance process a breeze. From signing up to making payments, it’s a walk in the park. And the best part? It’s safe and easily blends in with any existing system.
- Not to forget the Flexible Financing Options, which include a host of choices like reverse factoring, dynamic discounting, or receivables discounting. This makes it easy for businesses to pick what suits them.
- You can also bank on Credlix’s smart Risk Management methods. These use cutting-edge risk assessment tools to size up credit risk. They also make sure your money only goes to dependable suppliers. Bye-bye risks for financial institutions, hello secure supply chain finance process.
- Plus, Credlix leaves no stone unturned in offering top-notch Customer Support. Whether it’s helping you sign up, or managing transactions, the Credlix crew is always there to help.
Also Read: Supply Chain Finance Hacks To Transform Your Sourcing
