It is a known fact that the MSME sector plays a key role in India’s economic landscape. Over the years, it has emerged as an engine of growth, contributing significantly to the country’s employment, GDP, and exports.
On the downside, however, MSMEs navigate through several uncertainties in the course of their businesses, and a perennial capital constraint is one of them.
Micro, medium and small enterprises require steady and sufficient funding to stay afloat in today’s competitive market. And, this is where a bill discounting platform lends a helping hand to these business entities.
Read on to find out how.
Significance Of Bill Discounting Platforms For MSMEs
Although there exists a myriad of bill discounting platforms today, they share a common goal – facilitate businesses to raise quick funds. Companies can avail financing through bill discounting from any of these platforms and unlock their cash tied-up in unpaid invoices. It entails a business selling its account receivables to a factoring company, against which it receives funds at a discounted rate. Subsequently, the business collects its payments on due dates and repays the sum it borrowed to its financier.
Here is how MSMEs make use of bill discounting platforms in today’s age and time:
Figures indicate that only 16% of SMEs in India receive formal credit, per an IFC-Intellecap report. A loan proposition at a bank goes through a series of processes, the completion of which usually takes a few days to weeks. Now, when this is the case for 42.5 million odd MSMEs in India, it becomes detrimental to each of these enterprises’ financial health and the MSME sector at large.
Fintech companies successfully overcome the twin challenges of reach and implementation. Contrary to banking institutions, these platforms do not require place eligibility criteria and extensive documentation, thereby accelerating the processing time. In fact, KredX, a renowned bill discounting marketplace, extends funds to businesses within 24-72 hours* of application.
Movement Of Working Capital
A bill discounting platform invariably encourages small and medium enterprises to sell goods on credit. Credit sales induce customers to increase their spending, which gives a competitive advantage to the business. However, customers often delay their payments. This deferral disturbs the continual working capital requirements of an SME.
By opting for bill discounting, businesses easily dodge the associated risks of credit sales. Fintech companies essentially allow firms to convert their account receivables to liquid cash. Business owners can easily sell their account receivables to a financier and encash its funds locked-up in invoices. As a result, businesses, especially small-scale units like MSMEs, can effectively manage their working capital needs as and when they arise.
The traditional sources of financing call for business owners to pledge their assets, either commercial or personal, to avail funds. However, owners of small and medium businesses in India are, more often than not, sole proprietors. Therefore, they often face a glaring lack of assets. Bill discounting platforms extend credit against unpaid invoices of a business, thereby eliminating any collateral requirement. So, it becomes convenient for small enterprises to avail credit.
Retention Of Control
Another aspect of a bill discounting platform that MSMEs use to their advantage is the retention of control. With bill discounting, a business continues to exercise complete control over its sales ledger. Businesses reserve the sole right to collect due payments as well as the freedom to manage credit terms and negotiate further deals.
Businesses in India often perceive availing credit as a threat to their cachet and credibility. Bill discounting platforms offer services while maintaining the confidentiality of each transaction. As a result, small businesses can leverage bill discounting to access quick funds without the knowledge of their customers or suppliers. Therefore, bill discounting stands out as an ideal alternative to raise credit without compromising on business relations, brand loyalty, trustworthiness, or reputation.
Enhanced Business Performance
A business cannot pester its clientele to make timely payments as it increases the chances of losing customers. Bill discounting allows MSMEs to offer credit sales alongside maintaining a positive cash flow and sufficient working capital. So, business owners need not wait for their customers to pay on the standard 30, 60, or even 90-day payment terms. Instead, they can receive funds immediately. This way, fintech companies ensure that a business retains its customers and never puts its goodwill on the line. This ultimately translates to a better overall performance by the enterprise.
A bill discounting platform offers an easy and hassle-free alternative of financing to MSMEs. Businesses can acquire more liquid cash at hand and effectively meet their working capital requirements this way. Thus, these entities can successfully optimise their day-to-day operations and achieve growth targets in the long run.