Channel financing and corporate financing are two relatively new concepts with two contrasting definitions. Even though both of these concepts focus on gathering capital for businesses, they are not same.
What is channel financing?
It is an innovative financial product that extends working capital facility to channel partners like, raw material suppliers, distributors, dealers, etc. of various goods and services from a company. The financial assistance could be in the form of a bill discounting line of credit or cash credit facilities.
Via channel financing, financial institutions fund not only large corporations but also their dealers, distributors, suppliers, and other small and medium organizations associated with it.
It is important to note that if the suppliers or dealers and distributors are competent enough to arrange their funds, there is no need for such a line of credit.
The demand for this financial product only arises when these components of a supply chain are unable to arrange funds.
In such cases, manufacturers ensure the steady flow of funds to their partners with the help of channel financing.
How channel financing helps corporates?
- Corporates can also leverage the advantages of channel financing to build a strong relationship with its suppliers and distributors.
- They can use this to optimize their business liquidity as well as relieve the stress on cash flow.
- This facility ensures an uninterrupted supply of materials, which result in better production management. It also encourages distributors and dealers to purchase manufactured goods and meet product demand in the market.
Benefits of this facility
- Assured availability of credit at a competitive interest rate which ensures that a business never runs out of working capital.
- Quick approval and disbursal of funds.
- No collateral required to apply.
- Channel partners can receive their payments quickly and without much hassle
- Last but not least, it encourages others to perform better, which subsequently helps the company to increase its profit.
What is corporate financing?
Corporate financing deals with funding resources, structuring capital and make further investments. It is primarily focused on maximizing the capital of a company via short and long-term planning by implementing various strategies.
This type of financing is often regarded as a liaison between the capital market and the company. Moreover, it also encompasses the effective utilization of company resources and minimizing cost as much as possible.
Corporate finance division oversees a company’s regular financial activities as well as investment decisions. Such decisions include whether or not to follow any proposed investment and pay for it via debt, equity, or both.
Moreover, it also contains decisions like whether or not shareholders will receive dividends. It also decides the amount and type of credit to avail to keep a business financially healthy.
Scope of corporate financing
- It includes investment decisions that have been analyzed to select the best alternative.
- Financing decisions which include raising capital from various sources and necessary restructuring of a firm’s finances.
- Dividend decisions which comprise the analysis of basis amount and time of the return of every stockholder.
- Efficient management of working capital to optimized everyday business operations.
- Developing financial strategies for better policy implementations. It also portrays the working of advanced corporate financing.
Different corporate financing tasks
- Capital investments: It means investing the company’s capital with long-term goals. Such decisions are based on capital budgeting. It helps companies to identify capital expenditures and estimate future returns from proposed investments. Based on this analysis, companies decide which projects to invest in.
- Capital financing: It means sourcing capital from the open market via different methods. It includes issuing equity or debt, availing credit from financial institutions, issuing company bonds, and opting for Real Options Valuations (ROV).
- Short-term liquidity: It means ensuring the company has enough liquidity to manage its everyday operations. It is associated with managing current assets and liabilities, working capital, and operating cash flow.
Corporate financing aids businesses to make suitable decisions with the help of planning and monitoring financial activities.
Companies can avail of business loans to fund both channels and corporate financing. Prominent NBFCs like Bajaj Finserv offer such loans at an attractive interest rate to aid firms to ensure the necessary capital. Businesses can borrow up to Rs.30 lakh without pledging any collateral. Additionally, they can enjoy facilities like quick disbursal, minimum documentation, and more.
Furthermore, the company also provides pre-approved offers to make the loan application process smooth and less time-consuming.
Channel financing and corporate financing both help companies secure the necessary capital to continue their operations. Businesses must take the help of these to eliminate bottlenecks and ensure cash flow.