The MSMEs or Micro, Small and Medium Enterprises contribute 30% to the Indian GDP and 40% to exports. Hence, it is clear that MSMEs are the backbone of this country’s economy.
However, most frequently, they struggle to continue their business primarily due to lack of funds and delayed payment. While there are more than 50 million MSMEs in India, only 10% have access to financial services. To address this problem, business owners have a lucrative opportunity like invoice financing. Slowly, this financing option is becoming popular in India.
Thus, to leverage the benefits of this option, individuals first need to understand the meaning of it.
What is invoice financing?
It is a process of raising funds by collateralising unpaid invoices or receivables to a financial institution. While lenders offer the invoice amount as a loan, borrowers need to pay a certain amount of it as fees in return.
Through invoice financing, especially the small business owners can avail of the funds trapped in bills yet to receive.
Benefits of receivable financing
Following are some of the perks of opting for this borrowing solution.
- Business owners can access instant funds for short-term business requirements.
- Maintain a healthy cash flow in the business that ensures steady growth.
- Individuals do not have to wait for days to get payments from customers.
- Since invoice factoring is secured with accounts receivables, the approval does not take much time.
Hence, it constitutes one of the best financial habits business owners should have to keep their business agile.
Besides invoice factoring, business owners can also opt for another sought-after borrowing option that is channel financing. It proves to be a great option for supply chain businesses in specific. But, first, they need to assess its meaning in detail.
What is channel financing?
It is a means of availing working capital funds that lenders provide to dealers or suppliers (spoke) who have a good business relationship with corporates (Anchor). Generally, individuals opt for this fund when suppliers cannot meet the financial requirement to run the business.
This process is also known as supply chain financing, which also works through bill discounting. This borrowing option proves to be beneficial to boost a slow moving business.
Like its counterpart invoice financing, it also has several advantages that business owners can consider while facing a shortage of funds.
Advantages of supply chain financing
Following are some of the aspects that help in optimising the credit requirement of a supply chain business.
- The foremost advantage of channel financing is that it boosts the cash flow.
- It reduces the working capital gap that generally results from the natural tendency of buyers to hold back the payment till maturity and the quick financing requirement of suppliers.
- This borrowing option frees up the funds trapped in unpaid invoices. Eventually, borrowers can purchase the required raw material or products to continue the business endeavours.
- Besides shortening the payment cycle, shorter with an adequate credit flow, this financing option also improves the relationship between suppliers and buyers. The buyers do not have to feel burdened to pay bills before the due date, and suppliers can also continue production as per market demand.
Alternatively, individuals can also avail of a business loan of up to Rs.45 lakh from a reputed financial institution like Bajaj Finserv on favourable terms. Borrowers do not need to collateralise any asset against such credits.
This NBFC also extends pre-approved offers that make loan availing a smooth process that saves considerable time. Besides business loans, these offers are also applicable to various financial products like personal loans, credit cards and several others. You can also check your pre-approved offer instantly by providing your name and contact number.
Therefore, invoice financing proves to be a potent borrowing solution when the credit requirement aligns with the invoice amount and is necessary for a shorter term.
