Introduction:
Invoice Discounting Solutions : The present world has provided plenty of opportunities for young and budding entrepreneurs to scale their ideas into proper businesses. They have become a major contributor to India’s GDP, and also the development of several entrepreneurs has given more employment opportunities and workforce requirements.
It has secured a special space in creating employment offers for more people, thereby eliminating the lack of human work. In this blog, explore what MSMEs are and how they manage their finances using invoice discounting solutions.
Who are MSMEs?
The short form of MSME refers to the elaboration of micro, small, and medium enterprises. These are small businesses that operate and benefit people in multiple ways. Particularly in developing countries, these MSMEs play a crucial role in enhancing the economy.
These businesses include small factories, shops that are available in the local areas, service providers, and so on. No matter if a business is small or large, it contributes to the country’s economy and helps other people by providing job opportunities.
Invoice discounting solutions:
An invoice discounting solution is nothing but a sort of money-lending process for the MSMEs. Before we get into what an invoice discounting solution is, you need to know that these small-scale businesses would need money even before the buyers paid them. During these periods, small businesses may lack immediate cash flow but still need to operate without interruptions.
Therefore, we have introduced and successfully implemented invoice discounting to assist them and ensure their financial stability even before the payment date.
Invoice Discounting Solutions: How does it work?
With the invoice discounting solution, the MSME could get the cash immediately by using their unpaid invoices. Here’s how the process works:
They will give the unpaid invoice (trade receivable) to banks or other financial institutions as collateral, and the lenders will give the MSME immediate cash that is due from the buyers.
Here are the steps involved in acquiring the invoice discounting solution for your business
Generating your invoice: The initial step involves the process of invoice generation for the goods or services that they had sold or provided to the buyers or the customers.
Submitting the invoice: Once the invoice has been successfully generated, you can now submit it to the respective banks, financial institutions, or fintech platforms to get their approval for funding it.
Funding process: After checking and verifying the details, the MSMEs will be receiving a certain percentage of the value of the invoice in the form of funds. The value would range between 70% and 90% of the invoice submitted.
Payment settlement: When the MSME is able to settle the funds received, they will pay the entire invoice amount to the funding institution, and the remaining amount will be settled back to the MSME itself.
In this case, the business deducts only the service fee & returns the excess amount.
Benefits of invoice discounting:
The invoice discounting solution has been a boon to many MSMEs, who might be struggling with funds until the buyers or customers pay them. In so many ways, this practice offers numerous benefits for the MSMEs. Let us have a look at the benefits gained by them.
Availability of funds: The first & foremost benefit that comes with invoice discounting is the instant access to the funds once the invoice gets approved for funding. It doesn’t make MSMEs wait to receive the funds since they are instant.
Free from debts: If there is no option available like an invoice discounting solution, the businesses would be put in a situation to go for debt, and that would also increase the pressure of money for your business.
Therefore, this strategy rejects the need to go into any kind of debt until you are paid for.
Fund management: If you are having a customer or buyer with extended payment terms, then the need for money will give you several problems, like being unable to pay your workers or being unable to move to the next step in your business considering the lack of sufficient funds with you. To avoid such incidents, consider using invoice discounting as a solution to alleviate these issues and allow you to focus on improving your business.
Conclusion:
The process of invoice discounting solutions to MSMEs has been a major advantage considering the risks and problems faced by late payments. Since they are small businesses, it is difficult for them to manage without enough funding.
The invoice discounting would be a great solution for them due to its easy approval process and business-friendly terms and conditions. If you’re worried about your business’s funding, set those worries aside and generate the invoice to get the discount.