3 Trends SMEs Should Watch Out In Invoice Discounting Enterprise CFOs should watch out for vendor cloud automation, cash-flow based credit offerings and integrated supply chain financing platforms to enable best in class invoice discounting

By Archit Gupta

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While the Indian economy was recovering from the aftermath of COVID-19, the macroeconomic realities of today with inflation crossing 15 per cent continue to present tougher challenges to Indian businesses, particularly the MSME which are always impacted the most. These enterprises running on razor-thin margins and cash flow are now deeply strained with rising input costs, downsizing and indebtedness. Since MSMEs contribute to 30 per cent of the formal economy, continuously bleeding financials of these businesses can have a domino effect to disturb the supply chain of large enterprises especially in priority sectors such as auto, pharmaceuticals, manufacturing, healthcare, FMCG and others.

It is therefore imperative for CFOs of large enterprises to constantly identify working capital solutions and Invoice discounting is one such offering which provides businesses with an immediate collateral-free cash infusion without them having to undergo cumbersome approvals. With GST, e-invoicing, supply chain automation and invoice digitisation, the bill discounting offerings by fintechs and FIs alike are undergoing massive improvements.

Here are the three trends that CFOs should watch out for as they select invoice discounting offerings for their suppliers.

Merit-based credit disbursement to vendors

Conventionally, financiers always looked at the P&L and balance sheet of businesses before deciding which business to give credit to. However, recent offerings are now using cash-flow and transaction data to provide working capital loans. This has multi-fold benefits: firstly, with advancement in technology and analytics, the credit score assessment based on transaction data is faster and real-time, it does not include time-consuming paperwork; and secondly, it allows more businesses to come under the purview of credit offerings especially family owned and proprietor businesses which may not boast of a bulky balance sheet but have a promising business growth.

This merit-based credit disbursement has also received a shot in the arm with proliferation of GST and E-invoicing. GST filings by suppliers gives an Enterprise a good proxy to keep a pulse on the business health. This combined with e-invoice mandate for INR 20 crore-plus turnover enterprises results in enormous 'invoice level' data to process and validate before disbursing a loan.

Integrated supply chain financing platforms

Traditionally, enterprises have run either bank-led supply chain financing programs for their strategic vendor or have leveraged the TReDs marketplaces. However, currently all these offerings are standalone and run separately. What enterprises need is an integrated platform which allows them enough flexibility to run any supply chain financing solution for all their vendors throughout the year.

Firstly, the solution should allow the option to deploy either treasury cash, working capital credit lines with banks or TReDs marketplaces. This will allow enterprises to extend working capital solutions to both MSME and non-MSME vendors on the same platform. Also, enterprises will be able to earn additional operating EBITDA by deploying their excess cash whenever available.

Secondly, enterprises should look for solutions that are embedded at API level with their ERP solutions and financier systems with ability to read and write back invoice/vendor/transaction data.

Embedded vendor management solutions

Enabling cash-flow based lending solutions for suppliers on an integrated platform is half the battle won for enterprises. What remains to be addressed is the supplier-led inefficiencies that can be a blocker to facilitating credit. Paper document trail, non-compliant invoices, delayed GST filing are some of the reasons why enterprises have not been able to extend credit to a large vendor base. Many fintechs are now addressing this challenge with comprehensive AP automation, GST compliance and Invoice discounting solutions embedded together so as to address all the gaps in the life cycle of an invoice. A layer of vendor communication on top of this further ensures real-time interaction and query resolution resulting in faster invoice processing and credit disbursal.

Clear has an intelligent, secure, and reliable invoice discounting platform that brings together enterprises, suppliers, banks and TReDs marketplaces with a win-win proposition for all. This combined with AP automation and compliance offerings is a powerful solution for Enterprises who are looking to stay ahead of the curve.

Archit Gupta

Founder & CEO, Clear

Clear (née ClearTax) is India’s leading Fintech SaaS company with the mission of simplifying finance. We are trusted by over 6 million Indians, more than 50,000 tax professionals, 1 million small businesses and 3,000 large Enterprises. For small and large businesses, our product suite covers invoicing, GST, range of managed services and credit. For tax professionals, we offer comprehensive GST, Income Tax and TDS solutions. For individuals, we offer tax and wealth management solutions. With this Series C round, we have raised $140 million in equity capital since inception. Our investors include Y Combinator, Composite Capital, Elevation Capital, Founders Fund and Sequoia Capital.

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