Traditionally, suppliers and buyers stand on opposite sides of the negotiating table when closing a business deal. However, they may need to adopt a more collaborative approach in certain circumstances. For instance, they may come together to apply for a business loan.
Known as supply chain financing, this unique product enables the supplier to produce and deliver their products to the buyer on time.
In this blog, we deconstruct supply chain financing. We also outline the top six supply chain financing strategies that help lenders capitalise on market opportunities and grow this vertical.
What Are Supply Chain Financing Strategies?
Supply chain financing is a unique credit model in which buyers and suppliers come together to secure a loan. By doing so, the supplier has the financial resources to deliver the goods according to the buyer’s needs and timelines. Essentially, the loan is approved based on the buyer’s creditworthiness.
Here’s an example. Say a small business receives a large order from a corporate buyer. However, it is unable to fulfil the order due to a lack of financial resources. The small business does not possess a credit history or assets to secure a loan.
Instead, the buyer, who has a strong credit history, applies for the loan. The lender approves the loan, and the small business secures the funds and fulfils the order on time.
Supply chain financing strategies refer to a set of best practices lenders adopt to fill in the gap and drive revenues without increasing risks.
Today, supply chain financing is emerging as a significant business opportunity for lenders. The demand is triggered as more Micro, Small and Medium Enterprises (MSME) suppliers fulfil product orders.
By being prepared for this growth, lenders can capitalise on this opportunity and fill credit gaps.
Top 6 Supply Chain Financing Strategies
Here’s a list of six game-changing supply chain financing strategies you can adopt:
Automate the Lending Lifecycle
Ambitious lenders aiming to grow their supplier chain financing vertical must consider automating the lending workflow, end to end. Manual interventions can result in chaos, delays, omissions, errors, and data misuse.
The adoption of a cloud-based lending management solution enables lenders to automate the process. A superior solution leverages a mix of technologies, bringing efficiency, cost-effectiveness, and scalability to lending operations.
AI-powered Risk Assessment
When multiple organisations are involved in a single loan, the risks are also greater. Lenders can proactively address this challenge by adopting an AI-powered financial analysis process. AI can flag irregular banking transaction patterns that may be invisible to the human eye.
Banking transactions can be further deconstructed through swift extraction and segregation into multiple inflow and outflow categories.
This process helps to weed out transactions related to late fees, penalties, non-payment of EMIs, and cheque bounces. AI-based predictive analysis helps lenders identify the behaviour of borrowers that suggests an inability to make future EMI payments on time and in full.
Customised Offerings
The needs of suppliers and buyers vary extensively across sectors. Hence, lenders must be flexible in their offerings. The best approach is to customise loan products to serve the specific needs of various supplier-buyer partnerships. The smart use of technology enables lenders to personalise the products and make them more affordable and relevant.
This supply chain financing strategy allows lenders to stay competitive and capture a more significant market share in this vertical. It is a customer retention strategy that lowers customer acquisition costs due to the size of business loans.
Superior Communication
Since multiple parties are involved, lenders must be even more concise with communication. They can boost the clarity of the loan terms and conditions for all parties involved. They must know which party is repaying the loan, the interest rates, tenure, EMI, and late fees. Lenders can automate reminders and enable automated repayments to make it a seamless process.
Proactive Debt Recovery Process
As lenders scale this vertical, they may face delayed repayments, or a temporary halt in multiple repayments. Supplier-buyer partnerships may face some challenges such as a market slump. To support borrowers, lenders can put in place a proactive debt recovery system that is automated, data-driven, and customer-centric.
For example, the adoption of Management Information System (MIS), auto-generated calling and follow-up lists, and strategic allocation of debt recovery agents, can help expedite debt recovery. Access to real-time data can help agents make quick decisions. They can seek instant approvals, and problem-solve, effectively.
Data-driven Decision-making
The adoption of cloud-based, end-to-end lending management solutions, empowers lenders to nurture a data-driven culture. The software collates data from multiple sources. These include credit histories, banking statements, and business accounting. It automatically analyses the data in-depth, and allocates a creditworthiness score for borrowers. This feature helps lenders make informed decisions.
Lenders can also customise dashboards to understand past and future borrower trends, behaviours, and patterns. Based on these reports, lenders can improve their products and services. They can offer relevant solutions to evolving supplier-buyer partnership needs.
Benefits of Supply Chain Financing Strategies
Here’s a snapshot of key advantages:
- Lenders can ensure quick turnaround of loan applications, which helps drive conversions.
- They can manage risk effectively while capitalising on market opportunities.
- Businesses can retain customers through customer-centric supply chain financing strategies. Thus, they are able to reduce acquisition costs.
- Businesses can tap the MSME sector and serve it in a relevant manner.
- Lenders can function with lean teams, enhancing efficiency while reducing costs.
- The ticket size of supply chain financing loans is significantly large. Hence, lenders can drive revenues.
- Businesses can scale faster. They can capture greater market share through the effective use of technology.
The Takeaway
As more businesses scale and collaborate with suppliers to restock their product pipeline, there will be a growing need for quick and efficient credit access. Lenders can build a competitive edge by adopting the best supply chain financing strategies to provide affordable, customised, data-driven loans to this growing market.
Finezza offers a comprehensive set of tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.
Finezza’s intuitive bank statement analysis software is geared to analyze bank statements with speed, and accuracy and detect potential fraud.
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