Channel Finance - Quick and Easy Financing for Buyers and Suppliers
In every business, there are two main elements: the supplier and the buyer. As a supplier, your requirement would be to get quicker payments for the goods that you supply. However, if you are a buyer or a purchaser, you might need an extended credit period for the goods that have been purchased to recover the cost before making the final payment.
So, clearly, there is a mismatch in expectations and to bridge this gap, Channel Financing has come to the rescue. Through channel finance, both the parties, the supplier and the buyer, get access to working capital to carry out their transactions in a hassle-free manner.
What is Channel Financing?
Channel financing is a financial solution that aims to optimise the flow of capital within a supply chain. It allows businesses to enhance liquidity by leveraging various financing tools and techniques. This approach benefits both buyers and suppliers, as it fosters financial stability and operational efficiency.
Apart from the supplier and the buyer, channel finance also involves a lender, who is a third-party financial institution, such as a bank or a non-banking financial company (NBFC). The lender offers short-term credit facilities against purchase orders and invoices between buyers and suppliers.
So, the lender pays the supplier on behalf of the buyer,. On the other hand, the lender provides an extended time frame to the buyer for repayment, usually at a nominal interest rate.
Thus, by balancing early payments to suppliers and extended payment options for buyers, Channel Financing helps to release cash flow concerns from both sides and helps to meet their common trade objectives. This facilitates cordial relationships and leads to strengthened overall buyer-supplier relationships.
Thus, in the business jargon, we can say that by raising funds against unpaid invoices without debt, Channel Financing offers easy, relatively low-cost access to finances. Overall, it streamlines cash management across the entire supply chain.
Channel financing is also known as Invoice discounting, B2B BNPL, Invoice Finance, Bill Discounting, Supply chain financing and Manufacturer-distributor-dealer financing.
Features and Benefits of Channel Financing
Channel financing is a structured program that allows financial institutions to provide short-term advances to businesses and suppliers. In channel financing, there are three parties:
- Supplier
- Buyer
- Financer
Let us take a look at the benefits that channel finance can offer:
Benefits of Channel Finance For Suppliers
Here are the benefits that suppliers can get with channel financing:
- Collateral-free funding
You can access funds against unpaid invoices without collateral. This streamlines the funding process. - Timely payments As a supplier, you can receive timely payments. This can greatly increase the cash flow.
- Better liquidity
With increased liquidity, you can carry on your operations and also manage your financial obligations on time. You tend to receive payment quickly and get yourself free from the collection process. - Easy process
Channel financing has minimal documentation requirements and a simplified process. This allows your business to get quick access to needed finance. - Shortened money cycles
Invoice-based financing through channel financing eases pressure on supplier cash flow. It allows for smooth operations with adequate liquidity. - Lower bad debt
Channel financers specialised in risk assessments minimise the occurrence of non-payment issues, thereby letting you manage your business.
Benefits of Channel Finance For Buyers
Here are the benefits that buyers can expect with channel financing:
- Helps minimise your investmentWithout having to pledge collateral or dig into your savings, you can carry on with your business.
- More well-suited tenure for repaymentWithout negatively impacting their suppliers, as a buyer, you can extend their payment terms.
- Optimised working capital
When you have the freedom to extend the repayment tenure, you can make the most of the working capital that is available to you. - Easy access to affordable funds:Channel financing offers easy, relatively low-cost access to finances which increases the overall business profitability.
Table for Interest Rates and Eligibility for Channel Finance:
Check out the table given below that mentions the eligibility criteria for channel financing:
| Particulars | Details |
| Age | 23-65 |
| Nationality | Indian |
| Minimum CIBIL score required | 670 + |
| Processing Fee | 1-2% |
| Annual turnover | Rs. 1 crore |
| Loan amount per buyer in your network | Minimum: 2 lakhs
Maximum: 50 lakhs |
| Business vintage | 3 years |
| Repayment tenure | 30/60/90/120 Days |
| Interest rate offered | 12%*- 24%* per annum |
*Interest Rates are subject to change.
Documents Required for Channel Financing
The documents that must be presented for Channel Financing include:
- PAN and Aadhar cards are required as KYC documents.
- Essential business financial records
- GST Records
- ITR for the previous 2 years
- Bank account statements for the past 12 months
- Certificate of business ownership.
Why get Channel Finance from PaisaDost?
- The digital infrastructure allows for faster verification of invoices and quicker approvals.
- Suppliers and buyers gain access to flexible financing options tailored to their needs through PaisaDost.
- End-to-end visibility and seamless documentation handling
- PaisaDost offers Suppliers and buyers, a one-stop solution
- PaisaDost helps bridge funding gaps
- Maintain uninterrupted cash flows across the supply chain through invoice-based channel financing
- With PaisaDost assuming credit risk, you can focus on high-value tasks rather than payment collection or credit checks.
Over To You
Recognising their strategic importance, new financing options are now empowering Suppliers to scale their operations and better serve dynamic market needs. Channel financing, in particular, provides the funds that many suppliers need to strengthen their supplier relationships and invest in capabilities. With timely access to non-dilutive growth capital, Suppliers can free up resources to deepen their expertise, strike new partnerships and pursue opportunities previously out of reach.
PaisaDost provides an efficient channel financing solution through its online platform. It streamlines the overall process of connecting Buyers/Suppliers with new-age financing. Businesses can benefit from the simplified application process on the platform to obtain funds in a timely manner.
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Frequently Asked Questions
Do I need collateral when I apply for channel finance?
Whether you need collateral or not depends on your requirements. At PaisaDost, we can offer you the best possible finance solutions customised to your money needs.
Who can opt for channel finance?
While there are no restrictions, channel finance is best suited for suppliers, manufacturers, and distributors.
Should I opt for channel finance for my start-up business?
In most cases, you require a business vintage of 3 years to be eligible for channel finance. However, you can discuss the same with your lender.
What is the process of channel finance?
An innovative way of funding, channel finance helps you and your business gain funds. A supplier raises an invoice, and the buyer has to approve it. Once this is verified, the lender processes the loan and the loan amount is disbursed to the supplier’s bank account.