How unique supply chain financing models can address working capital challenges for logistic firms

Innovative supply chain finance solutions have the potential to bring significant benefits to the logistics ecosystem. Some of the major problems for working capital in the logistics industry centre around payment cycles, cash crunch, nature of expenses and high operational costs, according to a white paper published by fintech company CredAble.

Ram Kewalramani, Co-founder and Managing Director of CredAble, says that the working capital gap within the logistics sector has a profound impact on its level of efficiency and scalability. “Warehousing, for instance, often operates on a 30-day payment cycle, while freight forwarding experiences considerably longer cycles, often extending beyond 90 days. The consequence of these divergent payment cycles is a strain on the financial stability of logistics firms. The sector demands significant investments in various facets, including equipment, vehicles and infrastructure,” he states.

The paper’s research reveals that in the face of financial challenges, 71% of logistics professionals have acknowledged the hindrance posed by cash crunches, impeding operational optimisation and expansion. Additionally, the escalating geopolitical tensions surrounding fuel supply and diminishing warehousing availability underscore the pressing need to address these financial complexities. Consequently, average working capital requirements are projected to increase from 20% of revenue in 2017 to 25% of revenue by 2025.

Talking about the correlation of growth with efficient working capital financing, the paper finds that 70% of the companies that adopt supply chain financing are able to expand within 1 year.

Delving on some of the specific solutions by CredAble for logistics players, the paper talks about their early payment programmes, which presents an invoice discounting solution to optimise corporate entities’ days payable. “By accelerating payment cycles, MSMEs gain improved liquidity, aiding their cash flow management,” Kewalramani adds.

Besides this, the company’s UpScale platform is another solution that focuses on empowering businesses with tools and capabilities to thrive in a competitive landscape. The platform also aims to create a marketplace of distributors and vendors for clients. This, the paper highlights, will include analytics on each distributor, vendor, their processes and achievements. Digital lending players, Kewalramani says, have a pivotal role to play in facilitating a more seamless capital flow for the MSME and logistics ecosystem. He lists aspects such as enhancing access to credit, streamlining application and approval processes, offering flexible financing options and data-driven decision making that can be taken up by the industry to ease working capital for this sector. In April, a paper by investment banking company Avendus Capital had estimated that a massive credit gap of $530 billion existed for the MSME sector in India. Out of more than 64 million MSMEs, only 14% have access to credit.

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