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Channel Finance & The Concept Of Channel Financing

Channel Financing is an innovative option for extending working capital finance to dealers who have business relationships with large companies.

Channel Financing is the mechanism through which a Bank / Financial Institution meets the various funds related requirements along the Supply Chain at the suppliers end. This thereby helps the supplier in sustaining a seamless business flow and avoiding Working Capital related difficulties.

Channel Finance usually covers discounting of Trade Bills drawn by a company and accepted by its dealers, distributors or Channel Partners. It also provides overdraft facility to the dealers or distributors who have business dealings with large Corporate.

 Channel Financing could cover: -

 1) Discounting of Trade Bills drawn by a company and accepted by its Dealers / Distributors / Channel Partners.

 2) Providing Overdraft facility to the dealers / distributors who have business dealings with large Corporate.

 Benefits Of Channel Finance / Channel Financing: -

 A) Advantages to Corporate: -

 - Assured availability of Working Capital finance to their channel partners at lower than current cost of credit

 - Corporate can use Channel Finance as a marketing tool and strengthen their relationship / reward loyalty of their Channel Partners

 - Release of funds from the Balance Sheet resulting in improvement in financial Ratios

 - Conversion of Balance Sheet into an Off Balance Sheet liability

 - Greater efficiencies in the Corporates’ receivable management and cash management process

 - Ability to introduce payment discipline with their Channel Partners

 - Increased Sales through higher purchasing power for Channel Partners

 B) Advantages to Dealers/Distributors, i.e. the Channel Partners: -

 - Steady and cheaper source of Working Capital financing for Channel Partners

 - Channel partners can increase Sales through higher purchasing power

 - Clean facility up to certain limits

 - Simplicity of documentation and approval procedures

 - High service and delivery standards compared to current neighborhood Banker / Moneylender

 - Channel partners may be able to increase profitability by availing of cash discounts from Corporate

 Other Services Offered Under Corporate Finance :-

 Invoice Discounting

 Vendor Financing

 Debt Syndication