Why Most MSMEs Prefer Invoice Discounting In India

Sometimes a business may face cash issues for different reasons, like delayed payment, which may affect its cash flow management. Inadequate cash flow affects the business’s working capital requirement, making it challenging to run daily operations. Based on the working capital formula, the capital requirement is the difference between current assets and liabilities. However, if your business faces cash flow challenges, you can opt for a working capital facility in the form of Invoice Discounting from platforms like KredX to address your needs.

For instance, KredX offers Invoice Discounting to help businesses use their unpaid invoices as security to get working capital funds to run their daily operations. Invoice Discounting is a simplified way for SMEs and MSMEs to raise quick cash, but it is vital to understand how the invoice  discounting process works. 

What Is Invoice Discounting? 

Invoice discounting is a form of financing which involves a business securing a cash advance against its unpaid invoices to help the business pay suppliers. This arrangement enables the company to avail of a short-term loan to meet its daily operations.

It is vital to note that the lender will retain a percentage of the invoices total until they  mature. Usually, the maturity period is around 90 days. 

Although the Indian financing model is adequate and can offer instant cash for operations, it has advantages and disadvantages. The following is an overview of the benefits and drawbacks of Invoice Discounting.

What Are The Advantages Of Invoice Discounting?

Quick Cash Flow 

The main advantage of invoice discounting is that the business can avail quick access to funds to boost their cash flow. Invoice discounting solution platforms such as KredX offer instant cash immediately after the business issues the invoice. For instance, the KredX platform gives businesses funds within 24-72 hours, making it  one of the fastest disbursal times relative to other conventional platforms. 

Reduced Collection Time 

The collection period is the time it takes to receive liquid cash from accounts receivables. Interestingly, invoice discounting offers a way to receive cash advances in issued invoices before the invoice maturity. In addition, since the collection period has been reduced, the business can pay suppliers early and get an early payment discount. 

Accelerates Working Capital Management Cycle 

Bill finance instruments ensure the business’ unpaid invoices are unlocked quickly to offer the working capital necessary to keep operations running. Generally, it ensures positive cash flow turnover while minimising the cycle turn period. Note that invoice discounting is helpful if the business has more customers that pay big-value invoices. 

No Use Of Assets As Collateral 

Invoice discounting is a way of getting an unsecured working capital loan based on your unpaid invoices. Account receivables are what invoice discounting platforms such as KredX require. There is no risk to the business property, inventory, or movable items. 

Also read: What Factors Should SMEs/MSMEs Consider Before Taking a Working Capital Loan?

The Business Maintains Control, And Clients Are Not Affected 

This financing instrument helps manage cash flow and ensures that the business controls all account receivables and finances. You will continue collecting payments and following up on other invoices, as this financing method doesn’t affect the relationship with your clients. Additionally, the process doesn’t require the business to alert customers that they have sought invoice finance services.

Allows More Credit Sales

Your business can grow sales through credit or cash. With invoice discounting, companies can make more sales on credit without worrying because they can instantly be turned into liquid cash when needed. For SMEs, this allows them to leverage new opportunities and support growth.

Transparent And Paperless Process 

Invoice discounting is fast and can be completed online without requiring much paperwork. For instance, the business can upload invoices to the KredX platform and receive their cash advance quickly, with a transparent and smooth process, from listing invoices to cash disbursement. 

Bottom Line 

In conclusion, Invoice Discounting is an excellent financing option if the business needs quick funding to shore up healthy working capital. Several fintech firms, such as KredX, offer the financing option quickly, with the only collateral required being unpaid invoices.

Get a cash advance against your unpaid invoices today with KredX’s Invoice Discounting solution.