Channel Financing is an innovative option for extending working capital finance to dealers who have business relationships with large companies.
Channel Financing is the mechanism through which a Bank / Financial Institution meets the various funds related requirements along the Supply Chain at the suppliers end. This thereby helps the supplier in sustaining a seamless business flow and avoiding Working Capital related difficulties.
Channel Financing could cover: -
1) Discounting of Trade Bills drawn by a company and accepted by its Dealers / Distributors / Channel Partners.
2) Providing Overdraft facility to the dealers / distributors who have business dealings with large Corporate.
Benefits Of Channel Finance / Channel Financing: -
A) Advantages to Corporate: -
- Assured availability of Working Capital finance to their channel partners at lower than current cost of credit
- Corporate can use Channel Finance as a marketing tool and strengthen their relationship / reward loyalty of their Channel Partners
- Release of funds from the Balance Sheet resulting in improvement in financial Ratios
- Conversion of Balance Sheet into an Off Balance Sheet liability
- Greater efficiencies in the Corporates’ receivable management and cash management process
- Ability to introduce payment discipline with their Channel Partners
B) Advantages to Dealers/Distributors, i.e. the Channel Partners: -
- Steady and cheaper source of Working Capital financing
- Channel partners can increase Sales through higher purchasing power
- Clean facility up to certain limits
- Simplicity of documentation and approval procedures
- High service and delivery standards compared to current neighborhood Banker / Moneylender
- Channel partners may be able to increase profitability by availing of cash discounts from Corporate
