GST-Based Bill Discounting: A Relief For MSMEs

  • KredX Editorial Team
  • 26 Nov 20
  • Bill-Discounting,business
The Indian MSME sector is in a constant struggle to acquire credit from financial institutions. Without a reliable source of finance, many small-scale businesses struggle to keep their operations afloat.  The GST-based bill discounting system was implemented in India to ease such financial difficulties for the country’s micro, small, and medium enterprises. This can help your company to leverage its unpaid invoices and acquire financial assistance quickly. These funds can go a long way in addressing all your cash flow problems.

How Has GST Implementation Affected Indian Businesses?

GST or the Goods and Services Tax prevents the cascading effect of taxes that were previously the norm for businesses. The centralised taxation system combines 17 different taxes into one, thereby creating a more business-friendly environment.  For instance, one of the benefits that GST implementation introduced is that businesses no longer need to bear taxes on advances for the supply of goods. Additionally, transportation of goods throughout the country became easier after GST came into effect, by way of removal of check-posts. Similarly, with composition schemes, smaller businesses have benefited greatly. Today, small businesses can pay taxes at a flat rate of 1%, using a single filing in a year. Tax reliefs under GST, along with additional funding options in the form of bill discounting, is truly revolutionising the corporate sector in India, especially the MSME sector.    

Bill Discounting: What Is It?

Bill discounting or invoice discounting is a process where a business can acquire funds from a provider against their unpaid invoices or accounts receivable. This comes under the umbrella of invoice financing, which is divided into bill/invoice discounting and invoice factoring. Under a bill discounting system, the unpaid invoices remain in your company’s possession. The service provider offers a certain percentage of the outstanding amount to the business as an advance, generally ranging between 80% and 90%. However, the company is liable to collect the invoice payment from its clients or customers, ensuring repayment of dues to the invoice discounting service provider.  The other kind of invoice finance - invoice factoring, relies on the factoring provider to collect the outstanding ledger amount from your company’s clients. 

How Is Bill Discounting Beneficial For MSMEs?

Micro, small and medium enterprises cannot always rely on traditional lenders for their capital requirements.  Your company may not be able to meet the basic eligibility criteria for such forms of credit. Alternatively, servicing the interest requirement for such a business loan can be too burdensome for MSMEs.  If you are looking for assistance to meet your working capital needs, seeking KredX’s invoice discounting facility can help significantly. We offer hassle-free and convenient funding to small businesses, ensuring that the cash shortfalls never disrupt your business operations. Here are some benefits, which you can enjoy when you opt for an invoice discounting facility – 
  • Collateral-Free Access To Funds

Your business can avail of funding from financial institutions, without pledging any of your assets as collateral. Since hypothecation is not necessary, you can access such working capital solutions with ease. The documentation process for invoice financing is also minimal, making it one of the best choices for an emergency cash injection in your business.
  • Converting Unpaid Invoices Into Assets

As a small business owner, you may have to endure long spans, chasing unpaid invoices. Your company might not possess the necessary backup to endure such dry spells, financially speaking.  With this particular financing option, your business can utilise the unpaid invoices immediately, thereby giving you some leeway to fund day-to-day expenses.

Bottom Line

GST based bill discounting has the capacity to unlock the full potential of India’s MSME sector. Such financing options represent one of the easiest methods to ensure proper working capital flow for your small business.