Deft Supply Chain Finance: A necessity for businesses to grow
SMEs in India have always faced a working capital crunch with small businesses who are further down in the supply chain receiving relatively no access to working capital programs. When they do get access, interest rates are exorbitant and always takes away a big chunk from their profits. With lower profits, it becomes even more difficult for these businesses to work on expansion plans and make an impression in their respective markets. These problems can be solved with something known as multi tier supply chain financing.
Table of Contents
1) The problem faced by small players in the Supply Chain
2) The role manufacturers have played in easing the burden
3) The agility brought by fintech based Supply Chain Finance
4) The importance of treasury management
5) ERP reconciliation – What is it? How does it help?
Problems faced by Small players in the Supply Chain
While it is true that the pandemic played a major role in exacerbating the situation, the working capital crunch for small businesses has been a problem in the making for many years now.
- More often than not, businesses of small distributors and suppliers have been strapped for cash for many years now.
- Things have gotten so dire past the pandemic that these businesses have no option but to compromise on their business plans as they can’t find proper access to working capital,
- More importantly they can’t find proper access to working capital when it’s needed.
The role manufacturers have played in easing the burden
- In many cases, manufacturers play an active role to ease the liquidity pressures that their raw materials suppliers are faced with. This makes sense as these large manufacturers heavily rely on small business distributors to keep their supply chain moving.
- Manufacturers typically help their distributors through working capital loans that can help these businesses maintain a healthy level of working capital to keep their respective supply chains moving smoothly.
The agility brought by fintech based Supply Chain Finance
Supply chain financing of top quality is going to be the answer for these small businesses’ working capital woes as this is what will enable easier credit access to minor players. Along with offering working capital help, a quality supply chain financing program can account for the lengthy payment cycles that large corporations tend to have. Supply Chain finance steps in and ensures that stakeholders get their funds well ahead of time so that they can utilize the capital for their procurement needs.
- A working capital cycle that is short is also better controllable and leads to a higher accuracy in projections.
- Quicker turn-around times also help small businesses achieve growth targets and gives greater slack to the distributor/supplier to earn higher profits despite keeping his margins the same.
The issue then becomes the quality of supply chain finance programs available, and the extent to which these programs can be seamlessly integrated into the business, and thus it becomes a necessity for businesses to become digital friendly and receptive to latest technologies.
Many of the top tier supply chain finance programs today offer more than just lending functions, but also provide a host of other services such as treasury management and ERP reconciliation, such as CredAble’s gamut of supply chain finance solutions.
Many of the top tier supply chain finance programs led by fintech’s such as CredAble offer more than just lending functions,
The importance of Treasury Management
- State of the art techniques in the management of risk can help manufacturing businesses facilitate greater value, not just for themselves but also all parties involved in their supply chain.
- Treasury management is the term used to describe optimum management of the manufacturers’ cash, with additional funds to facilitate working capital loans for its distributors.
- This helps manufacturers achieve two objectives with one smart action; treasury management will most likely lead businesses to achieve greater growth rates compared to non-financed manufacturers.
- In addition, they achieve greater efficiency in their respective supply chains and help strengthen their distributor’s stability.
The latest innovations in financial technology have led to the creation of supply chain platforms that offer customized solutions for businesses to finance their entire supply chain, from the top tier of suppliers all the way till the end suppliers of raw materials. These platforms also use sophisticated data analysis techniques to analyze credit histories and all other available information to provide manufacturers with accurate insights in terms of better decisions for credit disbursement.
ERP Reconciliation – What is it? How does it help?
- The latest in tech innovations can seamlessly integrate with the existing API used by firms to manage their resources.
- Technological upgrades help large manufacturers continually improve their operational efficiency.
- Many recent reliable studies show that adoption of technology is going to be the single most important activity for firms looking to streamline their cash flows and adequately utilize funds to fund their distributors.
Fintech companies have already gotten a headstart in this domain. However, manufacturing firms must do their due diligence in preparing their organization’s ERP for adequate tech upgrades. Many manufacturers that continue to conduct their operations in outdated models of business processes must evolve to ride the wave of the current technological revolution.
At a time when financial institutes have been risk averse about financing distributor and supplier operations, manufacturers have a key role to play in improving the condition of the country’s supply chain finance capabilities. Manufacturers can take the initiative by reducing the time taken to clear invoices or by providing working capital lending at reasonable rates. These loans should not be seen purely for the sake of interest rates earned as there is far deeper value embedded in this process. Large manufacturers can lead the way in guiding these small businesses through a trajectory of growth and success.
Technology undoubtedly is the critical node in this entire discussion and manufacturers who put their businesses on the path of technological evolution can create the most value for themselves and their entire ecosystems. The rewards a manufacturer stands to earn from impeccable supply chain finance management are tremendous and can create value for all parties involved, both in the long run and the short run.
If you are keen on reading more such insights about working capital, fintech and innovations in fintech, be sure to check out CredAble.
CredAble is India’s largest working capital tech platform enabling more than $3 Billion working capital annually. As an umbrella platform for all working capital solutions, CredAble caters to the working capital requirements of India Inc which includes large, mid, emerging corporates, MSMEs, and financial institutions. We periodically write blogs and educational content (articles) around financial services, working capital and technology covering day-to-day relevant topics and business insights.