Nitin Arora

Supply chain management (SCM) or the active management of supply chain activities to enhance customer value and gain competitive management is an important part of every business, whether large or small. Good SCM potentially improves customer service, where the delivery of the right quality product in a timely manner appeases both producers and distributors.

SMEs are increasing becoming more complex and fast paced globally. Even the smallest SME has several products and suppliers that need to be managed daily or weekly. Effective SCM becomes a must for customer satisfaction and cost reduction in such a scenario. Otherwise, they’ll lose business to competitors.

Irregular Cash Flow: Common Problem Most SMEs Face


SMEs face a hard time in managing supply chains, where poor cash-flow becomes the main reason for the business’ under-performance and failure. Like many big enterprises, SMEs too need regular cash-flow to maintain inventory, suppliers and quality. In fact, maintaining a strong flow of cash through business is the key to success for any small- and medium-sized business. Firms struggle when they have to make large capital outlays to suppliers, demanding fast payment, but have to wait between 30 and 90 days before receiving payment from clients. Inflexibility of banks further aggravates this situation. Traditional banks avoid providing higher levels of funding to firms without any personal property, low fixed assets and insufficient trading history, all of which are common to SMEs.

However, times have changed and SMEs have an alternative now in invoice finance, also known as debtor finance and receivables finance. Invoice financing is fast becoming a preferred funding option for SMEs, not only in India but also across the world.

Invoice Finance: An Insight

Invoice financing is an asset based lending product, which allows companies to finance their slow-paying accounts receivables, keeping the outstanding bills and invoices as collateral. Any business could be eligible for the facility if they sell on credit to other businesses. Such financing is administered in two forms:

1. Factoring: This mode of financing is best suited for businesses with lower turnover, since factoring allocates the credit control to the finance provider. After invoicing to your customers, a copy of the invoice is sent to invoice factoring companies, who pay you up to 80% of the total invoice amount. It thus becomes the responsibility of the factoring provider to collect the payment from the customer. Factoring providers then give you the remaining balance of the invoice value, minus any charges.

2. Invoice Discounting: Invoice discounting is opted by larger businesses with vigorous in-house credit control procedures. They want to operate without their customers being aware of the lender’s involvement. In this type of invoice financing, you send a copy of the invoice to the invoice discounter, who advances up to 80% of the invoice value, usually within 3 days. However, it is you who will retain full responsibility of the administration of the sales ledger and debtor collection. You then receive the remaining balance of the invoice value, less any charges.

Beneficial Features of Invoice Financing

1. Solves all your cash flow problems

Inconsistent cash flow and late payments severely hinder business growth. Every business needs regular cash flow to pay their workers, as well as for capital expenditure, projects for the invoices issued to the clients, etc. To get a grip in this situation, firms are looking towards alternative funding solutions like invoice finance, to keep their business moving.

2. A Flexible Solution

When compared with all other form of financing, invoice finance is by far the most flexible one. It allows businesses to unlock the funds tied up in unpaid invoices, providing immediate flow of cash to the borrower. Such accounts receivables financing instantly liquidates your invoices into cash. In fact, the finance is on your sales figures, without taking into consideration any previous balance sheets. This provides a great opportunity to firms that are doing well, as the funding increases in such cases. Manufacturers, wholesalers or supply services collateralize their business’s outstanding invoices or bills and get a fast advance of up to 80% of their invoice’s value.

3. Saves a Lot Of Money & Time

Compared to traditional bank loans, invoice finance includes a full sales-ledger management service which allows the users to make significant savings by removing the burden of chasing payment, along with savings in terms of stationery, telephone calls, etc. Businesses can utilize the time saved on chasing payments for tasks related to their operations. Along with reducing late payments, businesses further save by taking advantage of early-payment discounts.

4. Transparent Money Lending & Easy Repayment

FinTech lenders do not adopt stringent eligibility criteria for the client. Their Supply Chain Finance is structured to offer funds up to 80% of the value of your invoices or bills. In addition, they allow you to opt for a flexible repayment plan between 30-180 days, depending on the nature of your business and vendor payment cycles. However, the most important benefits is that instead of making easy monthly installments, you can repay the money in one-time bullet repayment mode to avoid paying any further interest.

5. Invoice Financiers Become a Constant Companion

Some invoice financiers work with the client to manage the sales ledger, chase invoices and collect payments. The invoice financiers are well aware of the importance of good client relationships. In fact, the financier works closely with the client to fully understand their situation, business and customers.

Invoice finance is a zero-collateral loan, where you do not have to pledge any personal or business assets to receive funding. Your unpaid invoices are all you need to kick start the application process.

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January 2021