The downstream approach to supply chain finance

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The credit squeeze resulting from the recession put the focus firmly on supply chain finance as major corporations got to grips with the fact that some of their suppliers were struggling to finance their activities.
And as a result much of the discussion has centred on upstream activities – ensuring that suppliers are supported and can guarantee the supply of components.
But new research by Demica, the supply chain finance specialist, has highlighted the fact that downstream activities can also be vulnerable. Many SME distributors in high growth regions are confronted with high cost of funding, exacerbated by sellers’ pressure to increase sales, Demica’s research revealed.
As a result there is growing interest in distributor finance schemes which support the working capital needs of a corporate seller’s distributors and gives them access to affordable finance, enabling them to increase sales and grow business volumes with lower capital requirements.
Demica found that for large corporates, the primary objectives for implementing distributor finance were: to increase sales in high growth regions without applying more of their own working capital; to give the offered product a competitive advantage; and to reduce SME distributor risk.
Much of the focus for this activity is in Eastern Europe, Asia and Latin America. But it would be a mistake to under-estimate the challenge.
There are obvious wins to be had, but managing the financial risk of supporting small distributors in these high growth markets promises to be challenging.

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