The explosion of just-in-time manufacturing and just-in-time inventory is spurring the emergence of another revolution in commerce: just-in-time (JIT) financing.
As the rest of the business world improved and grew with high-tech logistics and tighter supply chains, trade finance — the boring, backroom backbone of global trade has remained mostly unevolved. Even in today’s technologically advanced business world, buyers and sellers predominantly settle their payments by a centuries-old paper-heavy method called the letter of credit.
The process, which requires the banks of the buyer and seller to coordinate with one another and exchange documents, often overseas, can take as much as two weeks – an arduous long time for cash-strapped companies operating on thin margins.
Recently, companies have begun investing in new Internet-based platforms that instantly link buyers and sellers and sometimes relegate banks to the side-lines. Some of these companies sprouted in the late 1990s when online procurement plans were first getting some traction. However, it is only in the past two years that these systems have gained significant traction in the business space.
At CredAble, we are proud to claim that we are the first player in the FinTech space to offer JIT financing. So why do you need JIT financing? How does it work? Moreover, what are its benefits? Let’s find out!
WHY JIT FINANCING MAY BE USEFUL FOR YOU
At CredAble, our vision for this entire endeavor is simple – Unlock Capital. Just in Time.
Our JIT Financing service allows all our clients to receive funding in real-time, even prior to the invoicing process, on the basis of their agreed delivery milestones earlier. This significantly helps bridge the existing gaps between payment obligations and supplier receivables. Our services can help save a lot of resources because of the short response time and elimination of middlemen from the process.
Here are some compelling points that make a strong case for pre-invoice funding:
- Lengthy receivables cycles from clients.
- Mismatched receivable and payable time frames result in extended cash-to-cash cycles for the supplier.
- Payments to ‘sub-vendors’ usually need to be made upfront and exert pressure on working capital.
- Less process fatigue from application requirements and limited access to traditional lending.
JIT Financing can make your financial supply chain work faster, which, in turn, allows your physical supply chain to move faster, too.
HOW DOES JIT FINANCING WORK AT CREDABLE?
Our JIT Financing service works in three simple steps:
- Vendor Assessment
At CredAble, we implement a robust appraisal process to evaluate credit quality based on the assessment of the client.
- Funding Milestone
Funding milestones and payment frequency can be customized to suit a supplier’s requirements, based on performance.
- Payment on Demand
The process is applicable for all businesses ranging from large corporates to small businesses. Once approved, payments can be tuned according to preferences.
With funding milestones, payment frequency can be customized to suit the supplier’s requirements. Payment frequencies could be daily, weekly or monthly.
THE BENEFITS OF JIT FINANCING
The JIT paradigm was first introduced in the manufacturing sector. JIT inventory is a stratagem that manufacturers utilize to increase the efficiency of the manufacturing process and decrease waste by receiving goods only as they are needed in the manufacturing process. This greatly helps in reducing the cost of inventory. Importantly, manufacturers must forecast their requirements accurately.
JIT avoids the waste of resources due to overproduction, waiting for material, and holding excess inventory. The founder of Toyota created the original concept. Just-in-Time means that at any particular time manufacturer makes only what is needed, only when it is needed, and only in the amount that is needed. This has many advantages:
Less space needed: With a faster turnaround of stock, you do not need as much storage space to store goods. This significantly reduces the amount of storage an organization needs, freeing up resources for other parts of the business.
Waste reduction: The faster turnaround of stock prevents goods from becoming obsolete or damaged while in storage, greatly reducing waste. This again saves money by preventing investment in unnecessary stock and unwanted waste.
Smaller investments: JIT inventory management is perfect for smaller businesses that don’t have the resources for huge amounts of stocks. Ordering stock as and when it is needed helps to maintain a healthy cash flow while minimizing wastage.
We take this very concept and apply it to pre-invoice funding. The benefits of JIT Financing are as follows:
- Risk Management
Financial risks are managed using our in-house proprietary credit assessment algorithms.
- Collateral-Free Financing
The Just-In-Time program provides collateral-free financing to suppliers as and when needed.
- Triggered by Billable Events
Financing is triggered based on the occurrence of ‘billable’ events that can include process milestones such as the issuance of PODs or outstanding invoices by clients.
- Automated Tracking
CredAble digital platform automates the financing and tracking process for smooth functioning and reliability.
- Customizable Platform
The platform can be customized as per user needs for similar ecosystems with mismatched receivables and payable cycles.
Contact us to know more about our offerings.