Invoice Discounting For The IT Industry

Every business, established or a start-up, knows the importance of managing its cash flow. But when it comes to the MSME (Micro, Small and Medium Enterprises) sector, access to capital is challenging. Therefore, a working capital solution like invoice discounting can be of immense help. Through invoice discounting, a company can acquire funds by offering its unpaid invoices as collateral.

Here, we will explore the importance of working capital and why invoice discounting for small-scale businesses is an effective solution.

Why Do SMEs Need Working Capital?

First, let us look at the reasons why SMEs need working capital:

• It helps these businesses prepare for unforeseeable and unavoidable financial emergencies.
• Having a substantial working capital enables a business to focus on growth and expansion strategies.
• It helps a business meet its short-term debt obligations.
• During the off-season, working capital helps a business stay afloat.
• Moreover, it helps businesses fulfil their mandatory obligations to employees, suppliers and the government when customers fail to pay on time.

Why Do SMEs Face Problems Accessing Working Capital?

India houses more than 90 million MSMEs contributing to 30% of our company's GDP (1). However, they have always struggled to access credit from formal financial institutions. This is primarily because of a weak financial base resulting in poor creditworthiness.

Considering that the financial reserve of an MSME remains wholly invested in its business, SMEs don't have legal provisions to fall back upon. These enterprises depend entirely on their working capital for managing expenses which leads to mismanagement of the balance sheet. Furthermore, they are likely to fail to pay statutory dues, which have a negative impact on their CIBIL scores.

How Does Invoice Discounting Help SMEs?

Invoice discounting is an effective solution for the working capital requirements of SMEs. Given below are the main reasons why:

• MSMEs do not need any collateral to avail invoice discounting. It is a short-term financing option which allows businesses to leverage their unpaid invoices as collateral and avail credit from third-party fintech service providers.
• Considering that invoice discounting is based upon liquidating unpaid bills, it removes the repayment burden of small enterprises.
• Fast processing is a crucial advantage of this alternative financing option. Moreover, it helps businesses acquire the necessary funds with minimum documentation.
• Discounting invoices facilitates cash flow which protects an enterprise against bad debt.
• MSMEs do not have to depend solely on their customers for the requisite money.

Bottom Line

MSMEs have always faced problems accessing credit from commercial banks. However, fintech companies are now offering invoice discounting for small-scale businesses as an effective solution. MSMEs can consider opting for KredX, a famous finance solution provider. We leverage cutting-edge technology to customise working capital solutions for businesses.