Channel Finance: 6 Reasons Why It’s a Win-Win-Win


From producer to seller to buyer, we’re all connected in the supply chain.

Keeping the links in this chain stable is increasingly important, especially when it comes to financial stability.

When it comes to today’s supply chain structure, you can think about it as an ecosystem, where each piece of this complex puzzle is dependent upon every other piece. So, even if you’re on the buying side of the transaction equation, the ability to satisfy your customers’ demands depends, to a great extent, on the financial stability of your suppliers. This is especially true in the B2B world when it comes to manufacturers who sell to their customers through a network of dealers and/or distributors. How can the sell side entities (dealers/distributors) of these B2B relationships maintain a healthy cash flow so that they can, not only satisfy their customers, but also scale their own businesses faster and with confidence? The answer may be channel finance, where sellers are able to access the funds necessary to free up their working capital.

Once the nearly exclusive domain of banks and large credit institutions, channel financing is now being offered by a wider range of businesses, from venture capitalists to private equity firms to large corporations to business service solution providers.

These entities have made it possible for sellers who may not have been able to get the funds they needed from banks in the past to now do so. Without that, many of these network sellers would not have the financial wherewithal to ramp up their business and increase capacity.

But getting the funding is only one benefit, though a major one, of finding and working with the right channel finance provider:

  1. Faster Upfront Payments – Sellers receive payment for a transaction within a relatively short, proscribed time directly from the channel finance provider. A number of providers are able to integrate directly with a seller’s point of sale system (POS), thereby streamlining and speeding up the payment process.
  2. Turnover of Credit and Collections – The biggest risk to SMEs (which many of these network sellers are) is not receiving payment for goods sold. When the provider takes responsibility for confirming the credit-worthiness of an account and collecting the payments due, the result for the seller is…
  3. Lower Administrative Costs – Consider how much time is spent on verifying a customers’ worthiness and chasing payment. That’s not the best use of employee time; instead, with the risk management being assumed by the finance provider, a seller’s employees can now focus on higher value tasks that lead to building a better business.
  4. Better Customer Relationships – With the finance provider acting as the middleman, any disputes or payment issues are between the provider and the buyer, thus removing the potential for customer dissatisfaction with the seller. Better relationships often lead to more business.
  5. 24/7 Visibility – This is a benefit that all network participants (manufacturers, sellers, and buyers) can take advantage of. With incoming and outgoing payments recorded in full with a complete audit trail, all three parts of the network can stay up-to-date on cash flow throughout the network. Visibility and knowledge allow each member of the network to optimize their working capital.
  6. Elimination of Paper and Manual Processes – This is another benefit that all network members can realize. Since all of the processing of POs and invoices is automated and completed through the finance provider’s solution, the burden, inefficiencies, and potential mistakes that can result from human error are gone. The result is a reduction of administrative costs for every participant, across the board.

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B2B networks deal with enough complexity as it is. When channel finance enters the picture: sellers can focus on growing their business, whether through increasing inventory or generating new customers; customers can focus on their core competency with a clear picture of their available working capital; and manufacturers, with a view of all seller and buyer activity, can forecast future expenditures with greater accuracy and confidence. Plus, the manufacturer now has a more loyal, motivated, and financially stable seller network.

See how channel financing can add greater stability, confidence, and knowledge to your commerce network.