Channel Finance for FMCG Distributors: Boosting Cash Flow & Growth

Introduction: The Need for Channel Finance in FMCG

The Fast-Moving Consumer Goods (FMCG) industry is among the most vibrant industries and the fastest-growing sector, propelling India's economy. The Indian FMCG sector is likely to grow to $220 billion by 2024 at a CAGR of 14.9%. Industry expansion is mainly driven by widening consumer demand, urbanization, and digital retailing. Yet the force behind the industry—distributors and retailers—is finding itself cash-strapped due to stretched credit cycles and high working capital needs.

To fill this cash flow shortfall, FMCG Distributor financing solutions are a big help. It supports distributors in receiving a consistent stock supply, paying suppliers in due time, and running smoothly without the hassle of cash flow. Credlix, a supplier of supply chain financing solutions, provides tailored funding solutions to FMCG distributors in a way that their businesses will be healthy and competitive in financial terms.

What is Channel Finance for FMCG Distributors?

Channel finance is a short-term financing facility extended to distributors, retailers, and wholesalers in the value chain. Channel finance provides working capital channel finance for FMCG to allow them to buy stocks from suppliers or manufacturers and manage cash flows accordingly.

This funding strategy allows distributors to ensure business continuity, optimize levels of stock, and establish healthy supplier relationships. With the help of FMCG channel financing companies, businesses can access quick and flexible financing to support their working capital requirements.

Why are FMCG Supply Chain Financing Solutions so Critical?

Closing the Working Capital Gap

• FMCG distributors usually work on a 30 to 90-day credit cycle, while the suppliers want cash on delivery. Channel finance fills the gap by granting liquidity immediately.

Facilitating Business Growth

• With adequate working capital, channel finance for FMCG distributors can expand to new geographies, introduce new SKUs, and stock up inventories without draining their treasury.

Avoidance of Delayed Payment

• Delayed payment to the retailer can stress cash flow for a distributor. Channel finance solutions allow payment by suppliers without penalty or stock destruction.

Enhancing Supplier Relationships

• Early payment to FMCG producers enhances negotiating power so that distributors can negotiate discounts and lower prices.

Handling Seasonal Fluctuations in Demand

• Parties, seasonal peaks, or promotions demand additional stock. Channel finance allows distributors to stock up without liquidity.

How FMCG Distributor Financing Solutions Work?

Distribution Onboarding

The interested FMCG distributors can submit their application online on the lender's website. It starts with the assessment of the business history of the distributor, his credit report, and his sales experience. This identifies the eligibility as well as matches the financing product to the financial position of the distributor.

Approval & Credit Limit Sanction

Following the final evaluation, the lender extends a credit limit based on the distributor's financial condition, payment record, and business outlook. The credit limit enables the distributor to purchase merchandise and maintain an ideal level of products in stock without resorting to a shortage of ready money.

Invoice Submission & Disbursement

To receive the approved credit, the distributor posts bills on the website to purchase stock. Upon validation, the lender pays the supplier directly, making procurement hassle-free. It removes cash flow constraints and enables distributors to carry ideal levels of stock without exhausting their working capital.

Repayment & Recycling of Credit

The financed amount is repaid by the distributor in a mutually convenient tenor. The payment made, the credit facility is rolled over, and regular business operations are resumed without any fiscal impediment. This type of cycle provides liquidity and assists distributors in having an efficient supply chain.