Small and medium businesses all across the country are opting for alternate modes of financing to fund their rapid growth. Most of these companies operate on a much smaller capital and often do not generate the same revenues throughout the year. Furthermore, pending bills and higher cost of raw materials usually put production to halt as these businesses fail to secure the necessary overhead expenditures.
Most companies often opt for debtor finance in situations like that. Asset-based lending like supply chain financing, invoice discounting, and factoring are the primary types that businesses prefer to avail during times of financial crises.
Supply chain finance, invoice discounting, and factoring are all excellent options for businesses which have bills yet to receive from buyers but need immediate financing. These are modes of short-term funding where the lender purchases the accounts receivable and provides with a percentage of that money to the manufacturer.
Supply chain financing differs somewhat from invoice discounting and factoring. Invoice discounting and factoring primarily cater to companies selling business to business services or products (B2B). Supply chain financing is generally availed by firms which deal with customers or retailers directly.
Supply chain financing is necessary for better supply chain management which every businessman should know. An establishment can concentrate on its growth as the lender takes care of the finances. It improves customer retention, enhances production capacity, maintains a steady flow of working capital, and keeps the entire operation cost-effective.