Supply Chain Finance: A New Cash Source Offered for Companies


In simple terms, supply chain finance or SCF is the financing option that lending institutions provide to businesses to optimise their supply chain. SCF is exceptional for supply chain management (SCM) and helps businesses improve their working capital efficiently.

What is SCM?

Supply chain management involves the management of all processes beginning from the procurement of raw materials from vendors to production of the final product, and delivering it to an end user.

Supply chain finance aids enterprises in streamlining their SCM to achieve operational excellence and increase turnover. Companies can apply for SCF to fund their dealers and vendors. They can also opt for factoring with SCF.

Factoring is a process in which businesses use their bills receivables to avail financing. The lender provides funds against the invoices, which act as collateral. Borrowers receive a discounted amount of those invoices, hence, freeing up cash trapped with customers.

SCF makes it easier for companies to keep working capital active, thereby, keeping inventory management ready to cater to orders. Hence, it’s a relatively new cash source offered to businesses for better financial management.  

Few features of supply chain finance provided by lenders include:

1. Collateral-free Financing Option

Financial institutions provide up to Rs. 30 Lakh to businesses with supply chain finance. SCF is primarily collateral-free. Hence, there’s no such risk of asset confiscation in case of default.

You can use the funds for various purposes:

  • Source raw materials from suppliers.
  • Reduce the production cycle.
  • Manage logistics, etc.

2. Fast Approval of the Loan Application

Lenders approve loans for supply chain management within 24 hours. The quick approval process makes SCF appropriate for an emergency requirement.

3. Flexible Repayment Period  

The repayment tenor for SCF can range from 12 to 60 months. Selecting the right tenor is crucial to determine the EMIs and total interest payable.

For example, a short tenor means low interest and high EMI. On the other hand, longer tenor comes with precisely the opposite.

4. Minimal Documentation

Most reputed lenders require borrowers to provide with only the basic documents to avail supply chain finance. For example:

  • Proof of business constitution (GST registration, Trade license, Partnership Deed, Memorandum of Association, Articles of Association, etc.)
  • Income tax returns of the previous year.
  • Bank account statement of the last month.
  • Financial documents (Balance Sheet, Profit & Loss Account, etc.). Applicants may have to audit the statements by a CA.

Borrowers also need to provide documents like Aadhaar, Voter ID, Passport, Driving License, PAN, etc. as a Proof of Identity.

5. Simple Eligibility Criteria

Applicants should be between the ages of 25 and 55 years with a business vintage of at least 3 years to be eligible for this loan. Also, lenders may ask for a minimum credit score of 750 to apply for supply chain finance.

The CIBIL score is mandatory for some NBFCs as these loans are unsecured by nature. A credit score ensures that the customer is creditworthy and can repay the loan without defaulting.  

6. Flexi Loan Facility

Bajaj Finserv also offers a unique Flexi Loan facility which enables one to make multiple withdrawals as and when required. The facility is similar to a standard loan where borrowers receive the funds in their accounts. However, they don’t have to pay EMIs immediately after availing the loan. Instead, interest is levied only on the amount borrowers withdraw from the sanctioned fund. They can also pay the interest as easy EMIs and repay the principal at the tenor’s end.

Therefore, every businessman should know what is supply chain management in-depth as it will help to utilise supply chain finance more efficiently.

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