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Business

Updated on: Saturday, December 18, 2021, 03:37 PM IST

Timely financing through invoice discounting is important for MSMEs; here's why

Invoice discounting empowers small businesses by putting additional cash into their hands and provide much-needed working capital to promote and encourage sales to happen/ Representative Image |

Invoice discounting empowers small businesses by putting additional cash into their hands and provide much-needed working capital to promote and encourage sales to happen/ Representative Image |

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Small and medium businesses are once again presented with the opportunity to drive India’s growth engine, in a post-pandemic recovery situation with GDP growth rates that touch the double digits. At the same time, however, the events of the past two years mean that many Indian small and medium businesses either lack cash reserves or have had those reserves severely depleted, meaning that day-to-day cash flow management is often a challenge, a situation that isn’t conducive to accelerated growth. This is exactly why immediate financing is the need of the hour, and invoice discounting is one of the best ways to put cash into the hands of MSME owners, when they need it, and with minimal long-term costs of financing.

Ability to invest in obtaining capital goods, promote sales

In today’s business environment, with cashflow remaining in short supply for many Indian businesses, the choice between investing in critical capital goods (like manufacturing hardware, for instance) and investing in working capital that’s required to support sales growth is often an either/ or decision. Successful businesses ideally need to invest in both.

Invoice discounting empowers small businesses by putting additional cash into their hands and provide much-needed working capital to promote and encourage sales to happen. This makes the capital goods investment decision easier, enabling business growth and ensuring that businesses continue to invest in future growth.

Need for greater resiliency from market uncertainties

The fact that we are still in a recovery period across the economies means that, for any given business, there will be uncertainties with regards to their partners--both upstream and downstream on the supply chain. What happens, for instance, if a major client pulls down the shutters and is unable to place one of their typical monthly orders? Or if a supplier for a critical component is unable to meet the business’ needs on time? In these kinds of situations, immediate financing offers small businesses a cushion against uncertainty without the long-term implications of conventional credit. Invoice discounting could offer the time and flexibility to find a new supplier on immediate payment terms, for instance, or sell unsold stock at a discount while maintaining stability overall.

Invoice discounting can help small businesses

Certain segments of the economy - small businesses manufacturing components for the textile industry for instance, are highly competitive spaces because of the large number of players offering similar products at a similar pricing. In these situations, any negative variability that could arise due to supply-side delays, or a small business’ inability to meet timeline commitments could result in lost clients and a worsening cashflow situation. In order to avoid these pitfalls, invoice discounting could give small businesses the flexibility to “straighten out” day-to-day variabilities, ensuring that they are able to deliver the best-quality products to clients, staying in the game. Less variability to account for could mean better commitment to timelines, fewer product defects, and an overall better customer experience.

We’re at a juncture where the need of the hour for small businesses in India is quick, reliable access to capital, with favorable terms of financing. This access will enable them to get hold of the capital goods and supplies they need, communicate with customers and leads, offer a better experience to customers, and so much more. Supply chain financing offers what seems to be the best balance of speed, access, and cost of borrowing to fill this immense need.

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Published on: Saturday, December 18, 2021, 03:37 PM IST
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