Supply Chain Finance: A Win-Win Solution For All Stakeholders
A supply chain finance program involves four parties, namely buyers (corporate anchors), sellers (suppliers), besides financing partners (banks) as well as supply chain solution providers.
All these stakeholders benefit from a supply chain finance program as detailed below:
How Sellers In The Supply Chain Ecosystem Benefit
- Before the presence of supply chain finance solution providers like Veefin, sellers or suppliers hardly had any option other than self-financing their working capital requirements on the strength of their own balance sheets. This used to benefit only a few top Tier-1 level suppliers with strong balance sheets. The balance sheets of smaller suppliers below Tier-1 were not attractive to banks and hence banks never financed them.
- Hence, small suppliers comprising Tier-2 and below had no other option but to borrow from non-banking finance companies (NBFCs) at high interest rates. All their revenues were spent on servicing interest payments, often leading to losses and even default on repaying their non-banking finance company (NBFC) creditors.
- However, after the entry of ‘deep-tier’ supply chain finance solution providers like Veefin, it has now become possible for even the below Tier-2 level of small suppliers or ‘deep-tier’ suppliers to secure finance on reasonable terms from banks, without collateral or strong balance sheets.
- Even suppliers with no prior trading legacy or creditworthiness can now access bank finance based on the financial strength of buyers or corporate anchors.
- New funds on an effectively low cost, as the supplier is a part of supply chain, can be deployed as growth capital to expand their core business activities.
How Corporate Anchors Benefit
- Prior to ‘deep-tier’ supply chain finance programs, it made sense for buyers or corporate anchors to demand better payment terms from their suppliers. However, this puts suppliers or sellers at a disadvantage.
- For corporate buyers, giving better payment to suppliers used to be an unsustainable proposition in the long run since there was a risk that this can adversely affect working capital requirements of buyers themselves. Besides, there was also the additional risk of the entire supply chain of corporate buyers getting disrupted in the process. Hence we see the result was strained buyer-seller relationships.
- The arrival of ‘deep-tier’ supply chain finance solution providers like Veefin has practically solved all such problems. Corporate buyers no longer have to worry about better terms for suppliers adversely impacting their own working capital requirements. This is because supply chain finance solution platforms and partner banks have devised reliable ways to underwrite risk. The result would be harmonious win-win buyer-seller relationships.
How Banks And Financial Institutions Benefit
- Banks and financial institutions may have the capital to lend but not the kind of scalable as well as versatile platforms which ‘deep-tier’ supply chain finance solution providers bring to the table.
- Until recently, banks could lend only to the top Tier-1 level of big suppliers based on their balance sheets.
- However, after partnering with ‘deep-tier’ supply chain finance solution providers, banks and financial institutions are able to lend to even the smallest supplier in the chain without trading legacy, creditworthiness or collateral.
- In other words, banks would gain several more clients to lend. Moreover, banks can lend based on the corporate anchor’s or buyer’s balance sheet. Banks would also benefit from the business analytics capabilities of supply chain finance solution providers.
- Such a synergistic arrangement acts as a growth driver for all stakeholders in the ecosystem.
