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As India’s economy recovered from the aftermath of COVID-19, today’s macroeconomic realities with inflation exceeding 15% continue to pose more difficult challenges for Indian businesses, especially MSMEs which are still the more affected. These businesses operating on razor-thin margins and cash flow are now strained by rising input costs, downsizing and debt. Given that MSMEs contribute 30% of the formal economy, the continued bleeding of these companies’ finances can have a domino effect and disrupt the supply chain of large companies, especially in priority sectors such as automotive. , pharmaceuticals, manufacturing, healthcare, FMCG and others.
It is therefore imperative for CFOs of large companies to continuously identify working capital solutions and invoice discounting is one such offering that provides companies with an immediate cash injection without collateral without them have to undergo tedious approvals. With GST, e-invoicing, supply chain automation and digitization of invoices, bill discounting offers from fintechs and FIs are seeing massive improvements.
Here are three trends CFOs should watch out for when selecting invoice discount offers for their vendors.
Merit-based credit disbursement to suppliers
Traditionally, financiers always looked at the P&L and balance sheet of companies before deciding which company to extend credit to. However, recent offerings are now using cash flow and transaction data to provide working capital loans. This has multiple advantages: firstly, with advances in technology and analytics, credit score assessment based on transaction data is faster and in real time, it does not include cumbersome paperwork ; and second, it allows more businesses to take up credit offers, especially family and owner-operated businesses that cannot boast a large balance sheet but have promising business growth.
This merit-based disbursement of credit has also received a boost with the proliferation of GST and electronic invoicing. GST returns by suppliers give a business a good proxy for keeping the pulse on the health of the business. This, combined with the e-invoicing mandate for businesses with turnover above INR 20 crore, results in huge ‘invoice level’ data to process and validate before disbursing a loan.
Integrated Supply Chain Finance Platforms
Traditionally, companies have implemented bank-led supply chain finance programs for their strategic supplier or leveraged TReDs markets. However, currently all of these offerings are standalone and run separately. What companies need is an integrated platform that gives them enough flexibility to run any supply chain finance solution for all their suppliers throughout the year.
First, the solution should allow the deployment of either Treasury cash or working capital lines of credit from banks or TReDs marketplaces. This will allow businesses to extend working capital solutions to MSME and non-MSME vendors on the same platform. Additionally, companies will be able to earn additional operating EBITDA by deploying their excess cash whenever it is available.
Second, companies should look for solutions integrated at the API level with their ERP solutions and financial systems with the ability to read and write back invoice/vendor/transaction data.
Integrated Supplier Management Solutions
Implementing cash flow-based lending solutions for vendors on an integrated platform is half the battle won for businesses. What remains to be resolved are supplier-induced inefficiencies that can be a barrier to credit facilitation. Trail of paper documents, non-compliant invoices, late filing of GST are some of the reasons why businesses have not been able to extend credit to a large supplier base. Many fintechs are now addressing this challenge with comprehensive accounts payable automation, GST compliance, and integrated invoice refresher solutions to fill all the gaps in an invoice’s lifecycle. A vendor communication layer on top of that ensures real-time interaction and query resolution, which speeds up invoice processing and credit disbursement.
Clear has a smart, secure and reliable bill discounting platform that brings together businesses, suppliers, banks and TReDs marketplaces with a win-win proposition for all. This, combined with automation and AP compliance offerings, is a powerful solution for businesses looking to stay ahead of the curve.