Channel Financing For the IT Peripherals Industry

Authored By: Shakti Agrawal, AVP Supply Chain Financing, Capital Float

Rapid growth in the organized retail sector in India has led to distribution channels that are packed with potential to tap into the geometric economic growth. With multiple new brands entering the Indian market, they have to set up new supply chains, which is a cash-intensive process.

IT partners can tap into this opportunity, however, the cash commitment to tap into this growth has been challenging, resulting in loss of opportunity. To address this need, several Fintech players have entered the channel financing space, through which they are able to offer channel partners quick and easy access to working capital credit.
Following are few areas of opportunities which can be maximized by Channel Partners with the help of Purchase Financing options:

New Brands and Channel Tie-ups – A typical channel partner’s portfolio should consist of 2-3 strong brands which are churning the stock month on month, along with high margin-driven new brands; the latter to be stocked with heavy cash discounts and lucrative offers. This is evidenced especially in the mobile market, where post an “Online Only” exclusive launch, brands are focusing on setting up offline channels. Having uninterrupted access to funds can help channel partner invest adequately in such opportunities.

Increase geographic spread of clients – With the advent of GST, the tax implications of operating in multiple states reduces considerably. This facilitates channel partners to acquire customers and be competitive across states. However, creating collection touch points at a local level, which has been the key strength of the channel partners, would involve heavy CapEx in setting up a branch. Dealing only in cash for a couple of months, before moving to credit is a better option, as it offers the benefit of aggressive pricing on cash further down the chain. Channel financing helps these partners to access funds and make supplier payments within twenty-four hours.

Outsource “Collections and Repayment Follow-ups” to Lending Professionals – Regional Channel Partners have a significant base of sub-distributors/retailers in their channel, with consistent month-on-month billing pattern. In such an ecosystem, delays in payments, and at times delinquency, remains a challenge in this industry. This results in the channel partner spending a significant amount of time and resources in collection and credit activity. Digital lenders can relieve the financial pressure experienced by the channel partner by providing quick finance, while also taking over the responsibility of collections from the partner.

Purchases on online portals reduce buying costs – Recent times have seen Channel Partners purchase their inventory from a host of B2B platforms. If a certain percentage of their inventory purchase is done on these platforms, they end up averaging their cost of purchases, hence pricing competitively as compared to other channel partners. In such scenarios, flexible credit lines offered by Fintech lenders can help the channel partners make quick buying decisions, especially during “Fire Sales” on online B2B platforms.

Though the above list can be different for different segments, the thumb rule of maintaining margins and adequate levels of stock is almost common across all distribution channels, not just IT peripherals. Given most of the cash is often stuck with large clients of the channel partners, a flexible credit line helps them to grab business opportunities. Channel financing can give the partners the much-required boost to increase their business scalability and impact their revenue generation.