The Indian Government and financial experts have together touted the MSME sector to be the torchbearer of India’s economic prosperity. However, financial support from the formal banking sector to MSMEs, remains low at only around 16%, according to an IFC-Intellecap report. The report revealed, there was an Rs. 16.66 lakh crore credit gap in the MSME sector, as of June 2019, which has only widened over the recent economic crisis.
Thus, to avert a cash flow slows down and sustain themselves better amid the fierce competition, several companies have turned to invoice financing. This credit option bridges the demand gap to a certain extent, especially for micro and small enterprises.
Importance Of Invoice Financing In A Business
Cash flow issues are a major cause of why several enterprises, especially small-scale ones, struggle to grow or even survive the competition. Matters get worse, when most of your customers defer payments, sometimes as long as 90 days.
Such a long duration is bound to overstrain your company’s liquidity, tying your hands from undertaking new projects or addressing necessary expenditures; although you have bills approved by customers.
Through bill financing, you can leverage your company’s Accounts Receivables to borrow funds. This way, you can avoid any liquidity crunch caused due to prolonged credit periods of 30 – 90 days.
Technically, bill financing allows you to release future cash inflow, which can be a significant benefit when it comes to working capital management.
There are several other benefits of this financing option that can help resolve your business’s cash flow issues.
Advantages Of Invoice Financing
Acquiring funds on time can make a world of difference in any business. Suppose you have received a massive order from a client, but you have been given only a week’s deadline to deliver.
Now, you will need to employ excess resources to its realisation, which will require a substantial influx of cash. In that regard, leading integrated cash flow solutions providers like KredX can help meet the invoice financing gap, by providing an advance within 24 – 72 hours*, letting you start operations promptly.
Another crucial advantage of invoice financing is you can get a considerable percentage of your company’s trade receivables as a loan. What’s more? The loan amount does not entail any usage restriction for starters.
You can use the loan to meet a host of business expenses, from operational overheads to salaries to replenishing inventory. The flexibility in usage and their high-value will boost working capital management considerably.
The simple loan disbursal process is one of the reasons why invoice financing is an ideal solution for a growing enterprise’s credit needs. All you need to do is register with a bill discounting platform, upload your company’s approved invoices, and receive funds in your account, all within 1 – 3 days.
The hassle-free, digitalised process offered by financiers like KredX makes it possible to turn to invoice financing for your company’s working capital needs, time and again.
You do not need to pledge any asset to acquire funds with invoice financing. It’s sanctioned simply against the value of your enterprise’s accounts receivables. Thus, leaves behind no risk of asset liquidation.
Unlike traditional working capital loans, you do not need to pay EMIs regularly towards servicing a credit of this sort. You can simply forward the outstanding amount to the financier on the maturity date of such accounts receivables. It reduces the burden of a loan considerably, allowing more monetary flexibility.
Choice Of Credit Control
Invoice financing is a broader term comprising – bill discounting and factoring.
Now, with the former option, you retain credit control of your business. Thus, you stay in the authority of collecting repayments, and your customers don’t get to know that their invoices have been utilised to acquire funds.
The financier assumes the responsibility to collect repayment if you opt for invoice factoring. A downside of this facility is that such an arrangement does not always bode well with clients.
Availing credit from banks and NBFCs can often become challenging, owing to factors like stringent eligibility criteria, lengthy documentation, and processing period. You can turn to invoice financing for bypassing such challenges, and ensure that your company’s working capital needs are adequately met.