Supply Chain Finance (SCF) is a short-term working capital financing solution designed for buyers and sellers.
SCF enables vendors/dealers to receive funds quickly against approved invoices, while allowing the buyer to maintain its normal payment cycle, thereby improving cash flow for both parties.
Supply chain finance is also known as channel finance
How supply chain finance works:
- Assessment and approval of credit limit – First buyer’s eligibility will get assessed by Bank/NBFC. Eligibility will be assessed based on the credit rating, business performance, compliance status and other parameters as per business requirements. Post assessment of a credit limit will be sanctioned to buyers.
- Submission of invoices to the finance company – Buyer will upload the purchase invoice on the digital supply chain platform provided by the Bank/NBFC
- Invoice verification – Banks / NBFC will verify the invoices uploaded by buyer
- Loan disbursement – Post verification of invoice banks will disburse the funds to seller.
- Repayment of Loan – Buyer will re-pay the loan to banks as per credit term
There are two methods in channel finance:
- Pull method – In this method seller has the control of entire process, like seller will upload the invoice on digital supply chain platform as per the due date of invoice and get the disbursements of funds from bank.
- Push method – In this method buyer has the control of entire process, like buyer will upload the invoice on digital supply chain platform as per the due date of invoice and funds will be disbursed to seller.