Yubi – Anchor Financing
Learn how YubiFlow platform helps with your Anchor Financing needs!
What is Anchor Financing?
Today’s business models are based on credit purchases and sales. This means that there is a delay in receipt of payment from the time of actual sales. The sellers usually allow a credit period of 30-90 days for payment. For some slow-moving goods, the payment can be delayed for 6 months. As a result, the funds employed by the seller remain blocked during this credit period. The business’s liquidity is reduced, and it becomes hard to keep the business running without additional funds.
Anchor finance aims to assist businesses with their short-term fund requirements and help small and medium businesses (Spokes) that supply goods to large corporates (Anchors) or buy goods from them.
Under the anchor finance system, supply chain credit can be availed for purchase or sales related to large corporates or Anchors. If you sell goods to the anchor, you can get the bill discounted from the bank as soon as it is approved. On the other hand, a buyer can enjoy cash discounts by paying the dues early.
Benefits of Anchor Financing
For Anchor in Supply Chain (Large Corporate)
✓Reduced Working Capital Needs: The working capital requirement is higher for large companies, given their scale of operations. If the bills are not paid timely, it can lead to the loss of reputation for the company and disrupt its operations. This difficulty can be overcome with the help of anchor finance.
✓Improved Cash Flows: Steady Cash Flows are as important for businesses as blood for our body. No business can survive without liquidity. Hence, corporations need to maintain regular cash flow. Availability of working capital finance aids in this process.
✓Helps Build a Stable Supply Chain: All entities thrive on money, from buyers to sellers. A business that pays off its debts on time always holds goodwill in the market. Usually, businesses having better goodwill have the privilege to choose the vendors of their choice and are more likely to have a stable supply chain.
✓Reduced Borrowing Cost: Supply chain or anchor finance is cheaper than traditional loans as these are short-term and the risk involved is less. This reduces the overall cost of capital and increases profit.
For the Spokes (Buyers/Supplier)
✓Reduced Financial Dependence on the Anchor: SME businesses usually have limited customers. Many of them depend on the transactions carried out with large corporations for a chunk of their business. As a result, most of the working capital is blocked in dealings with them. If the anchors delay payments, their entire business can become jeopardized. Getting the payment on time with bill discounting can help them maintain their cash flows.
✓Cash Discount: Corporates offer attractive cash discounts on early payments made by buyers. This discount is also available if the payment is made using supply chain finance. This helps SME buyers increase their profit margins.
✓Cheaper than Business Loans: Generally, higher interest is charged on the loans offered by banks to SMEs. But, supply chain finance is provided at lower interest. This reduces the overall cost of capital for the business and increases profits.
✓Ensures Liquidity: Liquidity drives all the economic activities of a business. Working Capital Finance makes life easy for small businesses by aiding the capital flow and thus ensuring liquidity.
✓Empowers and Encourages SME Businesses: Availability of cheaper working capital helps a company increase its turnover. A lower credit period means more rollovers of the assets and hence generates higher turnover. In other words, anchor finance empowers SME businesses and encourages them to expand their operations.
How Does Anchor Financing Work?
When Anchor Purchases the Goods from a Supplier
✓The anchor makes a tie-up with the bank to provide supply chain finance to pay bills.
✓The fintech firms provide a digital portal to the Anchor on which the supplier has to register his company and upload all the bills as and when they are raised.
✓Anchors have to ensure that all the bills are uploaded on this portal so that the bank can discount them on approval.
✓Banks then pay the bill amount after deducting a minimum amount for bill discounting to the supplier.
✓The Anchor has to pay the due amount to the bank on the due date.
When Anchor Sells the Goods to a Buyer
✓The buyer has to register on the online portal.
✓Anchor has to upload all the bills on the online portal so that the bank can arrange to discount them on approval.
✓After receiving the approval from the buyer, the bank pays the due amount after discounting to the Anchor.
✓On the bill’s due date, the buyer has to pay the bill amount to the bank.
A supply chain finance anchor has all the tools at his disposal to ensure that the value chain remains stable. By availing of a Supply Chain Finance facility, you can ensure that your business operations become painless. Yubi’s YubiFlow is a platform where you can apply for anchor finance and avail the benefits of online portals for reconciling your bills.
Who is an Anchor?
Large corporations have many suppliers and buyers called the Anchors, who are at the center of Anchor financing. Banks allow discounting of the bills related to the buyers and suppliers of the Anchors who have tie-ups with them.
What is the Priority Sector?
The sectors that require a boost to make basic development in a country are called the priority sectors. The Government of India and RBI decide the list of priority sectors of the country. Currently, the priority sector in India comprises agriculture, MSMEs, education, housing, social infrastructure, renewable energy, etc.
How are Fintech Firms aiding Anchor Finance?
Fintech companies provide platforms that aid a faster lending process between the borrowers and the financial institutions. Banks and NBFCs also prefer such platforms as they can be sure that they can lend to genuine customers having prospects to repay the loan. This makes compliance easier.