Enhancing Cash Flow Management for SMEs: Exploring Bill Discounting as a Strategic Alternative to Traditional SME Loan Products

For SMEs, a good cash flow equivalent is as good as a healthy lifeblood for prosperity. However, there will always be one challenge: making ends meet to satisfy the customer order and control expenses as much as possible will always have enough bank balance to run daily operations, which seems a bit like a mere balancing act. SME loans in this context have, therefore, conventionally been used as a means of covering these cash flow gaps, but these come with long-winding application procedures and high eligibility criteria to even be considered, not to mention potentially usurious interest rates.

The following article discusses an emergent alternative for improving cash flow management for SMEs: Bill discounting. Invoice discounting, also known as Bill Discounting, allows a business to unlock working capital that is held up in outstanding bills from creditworthy customers. Through the specially built online platform at KredX, SMEs can release their receivables, thereby availing themselves of a better financial circulatory mechanism than the traditional systems of SME loans offer.

The Challenge Posed by Uncollected Invoices

Imagine this: Your bakery, “Bake My Day,” has just filled a huge corporate event catering order. The invoice comes out to be $10,000, which is a good sum for your growing business. Your standard terms require payment in full upfront, but your client’s terms are net 30. You won’t see the funds for another month. In the meantime, you’ve got payroll to cover, new ingredients to buy, and operational costs to maintain.

This is a scenario many SMEs must have to go through when unpaid invoices create a choke in the cash flow. Waiting a month, two or even three months after the invoice date– basically for customers – to pay can cripple the company when it needs to take advantage of new opportunities or expand into growth projects or when it merely needs to keep the lights on.

A Strategic Answer: Bill Discounting

Invoice discounting presents a most coveted option for such cash-choked SMEs regarding traditional loans to SMEs.

This is how it works: Businesses upload their verified invoices onto a platform like KredX, which aggressively checks the firm’s creditworthiness that issues the invoice, thus reducing the possibility of having bad debts for an investor.

KredX provides businesses a platform in which they can showcase their receivables to a network of pre-approved investors who will look to invest in these high-quality receivables, thus creating a market for them. This could include banks, financial institutions, and private investors.

Investors agree to purchase the invoice at a discount. The discount rate is dependent on the invoice amount, the creditworthiness of the invoice debtor, and prevailing market conditions.

KredX facilitates this transaction and disburses the discounted invoice amount to the business. The residual balance is paid to the business, net of KredX’s platform fee, upon settlement of the invoice by the customer.

Benefits of Bill Discounting for SMEs

In comparison to traditional SME loans, invoice discounting has multiple advantages for the SMEs. Quick availability of working capital: In contrast to the prolonged and tedious process of availing SME loans, Bill discounting provides almost immediate access to finance for any company. This nimbleness helps the SMEs serve the immediate cash flow requirements and seize available panicky situations.

Better Cash Flow Visibility: With bill discounting and turning outstanding invoices into instant working capital, the business can predict cash flow very notably. This improved visibility will give SMEs more power to make well-known, informed financial decisions and optimise resource allocation.

Reduced Reliance on Traditional Lenders: Invoice discounting provides an alternative way for SME Loans to rise forth and apart from the traditional lenders. This becomes a diversification that can be especially beneficial for the entities that stand little chance under the notoriously rigid criteria that govern most SME loans.

Possible Cost Savings: Sometimes, the implied discount rate attached to Bill Discounting can actually be lower than the interest rate levied by an SME loan. This can thereby lead to immense savings for SMEs, more so for those having a solid credit profile.

Simplified Process: Marketplaces such as KredX make invoice discounting much easier by removing thousands of pieces of cumbersome paperwork and excruciating negotiations from banks.

Scalability: The discounting solutions for invoices can be flexibly customised to meet the specific needs of businesses of all sizes and across all sectors. Therefore, invoice discounting is an important tool for facility, just as it is for use by a firmly established SME loan or growing start-up.

Coming back to our example, Bake My Day can sell this invoice to KredX and recover the $10,000 that the corporate client owes them. Bake My Day can submit this invoice to KredX and, after due verification, receive probably 80% of the invoice value within 24-72 hours. This immediacy of cash in their bank brings on board Bake My Day to meet immediate

Beyond Bill Discounting: A Wholesome Approach to Working Capital Management for SMEs

KredX believes that while the power of invoice discounting could be a game-changer, SMEs would want a more wholesome approach to working capital management. Apart from bill discounting, KredX has a host of solutions that are all curated to optimise the entire cash conversion cycle.

Dynamic Discounting: An innovative solution allowing companies or suppliers remarkable 

flexibility for offering variable discounts to their customers in order to expedite their payment cycle. For example, a customer would receive a 2% discount on an invoice if it were paid within ten days. This serves as bait for faster payment cycles and yields predictable cash flow.

Order-to-cash Automation: The order-to-cash cycle—starting from user order creation right up to invoice generation and recovery of payments—is automated through the KredX platform. This automation minimises the need for manual work, thus reducing errors and shortening the time taken to collect payments from customers.

PO-to-Pay Automation: SME Loans sometimes spend an inordinate amount of time processing supplier invoices and making error-prone payments. KredX automated the invoice approval workflow, right from PO to payment, to reduce the turnaround time in the payment processing cycle and make payments on time, eventually establishing better supplier relations.

With these supplementary working capital management solutions and the addition of invoice discounting, KredX becomes the perfect cog through which this holistic financial transformation can be effected. Such an approach can serve the dual effect of unlocking the outstanding receivables and, at the same time, allowing optimisation of the whole cash-conversion cycle. Proper management of cash flow will ensure liquidity, reduce administrative costs, and result in a leaner financial operation.

In the competitive business environment of today, innovative solutions are imperative for SMEs to better manage cash flows. Invoice discounting, especially backed by the full suite of KredX Working Capital Management tools, is the best alternative to a classic SME loan. Through KredX, an SME can leverage its platform to achieve faster-working capital cycles and better cash flow visibility, financial flexibility, and more.

Take control over your daily cash flow. Visit KredX to know everything about invoice discounting and how our solutions can be the best help your SME Loans could ever get to reach their full potential.