Covid-19 disrupted the workflow of several industries and it was no different for consumer durable businesses. The pandemic induced lockdowns, and the repressed demand adversely impacted the growth of these businesses.
After the roller-coaster growth trends in the consequent years, the consumer durable industry is gearing up for sizzling sales this fiscal year. According to recent statistics, the sector’s revenue is expected to grow by 15-18%, making it a trillion-dollar industry
Amidst the escalating needs for raw materials to keep up with the demands, hopes are pinned on the continuation of strong demand trends witnessed in recent times. This trend is expected to sustain, if not surpass, in 2023.
Additional Read: Why is Channel Finance important for Mid-market OEMs?
The need to finance the increased demand
With the rise in the WFH trend, there’s an increased need for consumer convenience. Although spending on categories like apparel and eating out have taken a backseat, there’s a rise among consumers in upgrading appliances to enhance their lifestyle.
For example, many people are still reluctant to venture into theatres and instead invest in good quality television. LED TVs and other high-end appliances faced a stock-out situation during the festive season last year.
With the evolving consumer convenience, in-home entertainment, and demand for durable goods like television, refrigerators, and other domestic appliances, sales are only expected to rise in the last quarter, as the financial year 22-23 comes to a close.
Businesses trading in consumer durables are gearing up to scale past the pre-pandemic volume mark and channel financing can provide the much-needed financial aid to support them in making this a reality.
Channel financing
Channel financing is an inventory financing solution provided by certain financial institutions to assist supply chain partners of large corporations. It is a structured program offering funding to distributors and dealers doing business with large corporations to purchase stock from the anchor company and scale their business.
Channel financing is a working capital loan, available as bill discounting or cash credit. A supplier or a distributor can avail of channel finance by presenting approved invoices to a lender. The lender provides the borrower with the funds immediately and it also takes up the responsibility for getting the invoices paid back in full.
Additional Read: How Can Channel Financing Help You Manage Your Supply Chain Better
How channel financing can help businesses in Q4
With revenue taking a hit post-Covid-19 and the anticipated rise in demand in Q4, consumer durables traders find themselves in a unique position. On the one hand, they’ve tapped out of their cash reserves trying to survive the consequences of the pandemic. On the other hand, they see an opportunity for recovery with an increase in demand that small businesses cannot leverage without adequate funds.
However, this dilemma can be solved using channel financing.
Ease of access
Channel Financing is quick and easy to avail funds to supplement their working capital and expand their reach. Lenders can also provide business loans to fund the short-term business needs of the corporate dealers, along with inventory financing.
With such working capital term loans, the liquidity of the businesses improves and their liabilities also reduce as the risk of bad debt is taken on by the bank. By timely and guaranteed access to the capital, they can manage operations seamlessly and invest in their growth without jeopardizing the current business.
Improved inventory management
To meet the increasing demand, businesses need money to stock up on their inventories. With a working capital loan like channel finance, they can get the funds necessary to manage their inventory at lower costs.
Relaxed financial constraints
Working capital term loans like channel financing keeps the supply chain free of disruptions caused by a lack of funds. Every step of the supply chain requires money. By offering working capital loans like cash credits or bill discounting, channel finance can ensure that each participant of the supply chain remains liquid and functional till their invoice payments are realised.
A supplier would want his invoices paid in full as soon as possible while a dealer would want to wait till he earns some money before paying the supplier. By introducing a working capital term loan between the supplier and a financial institution based on the dealer’s approved invoice, channel financing eases the constraints that are imposed on both the dealer and the supplier.
Competitive financing terms
Unlike other working capital loans, channel financing relies on the strength of the supply chain relationships between buyers and sellers. Hence, borrowers can access funds at lower rates of interest, and interest is paid only on the funds utilized in the month.
Also, enterprises can make payments for the inventory purchased after they convert it to cash. Hence, there is a reduced burden on the payment process to the corporate. This can be especially helpful for businesses grappling with cash problems post covid-19 era.
Tata Capital’s Channel finance solutions enable dealers to access funds in a simple, convenient, and digital manner.
Flexible product structures
Tata Capital also provides flexible structuring of the product to suit varied industries, enabling more supply chain partners to avail the facility.
Channel finance is an excellent financing alternative that can be leveraged by consumer durable businesses to accelerate their recovery post-Covid-19 era. By planning for adequate access to capital beforehand, supply chain partners can make the most of the anticipated growth in sales in Q4.
Tata Capital Channel Finance has strategic solutions tailored to suit your exclusive business needs. If you are looking to fund your inventory for Q4 with Channel Finance, reach out to our experts to know more about how Tata Capital can assist you in the same.
23 March 2023
5 mins read
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