How KredX Invoice Discounting Platform Solves MSMEs/SMEs’ Working Capital Woes?
Micro, small and medium enterprises (MSME) sector in India not only plays a crucial role in providing extensive employment opportunities at comparatively lower capital costs than large industries but also helps in the industrialisation of rural areas. They play a path-breaking role in reducing regional imbalances, assuring a more equitable distribution of national income and wealth, and contributing to 40% of the nation’s exports.
However, the MSME sector is struggling in terms of procuring funds. The fundamental reason is that the current Indian financial system has not encouraged flexibility while advancing credits to the sector. The banking system largely focuses on asset creation and offers respective credit schemes and tools to MSMEs. SMEs have different challenges and operations, which need different credit instruments.
Further, MSMEs don’t have a financial cushion to absorb even slight shocks in the cash flow. The small companies in India have almost 80% of their business in credit. According to the Payment Practices Barometer Asia Pacific 2019 by Atradius, on average, 39% of invoices of MSMEs remain unpaid at the due date. Further, the entire period of payment is postponed to a staggering 59 days. These distressed cash inflows not only limit their operational capacity but also stalls business growth to take on new orders, thus undermining their very survival.
KredX is an Invoice Discounting platform that offers credit to MSMEs against unpaid invoices so that they can strengthen their working capital to keep their businesses afloat. Small businesses are not required to offer any form of assets as collateral for raising working capital through the KredX platform.
Also Read: What Factors Should SMEs/MSMEs Consider Before Taking a Working Capital Loan?
Benefits Of The Kredx Platform
Healthy Cash Inflow: KredX processes your application to raise a credit against unpaid invoices within 24-72 hours. Fast disbursals make KredX a unique organisation that cares about strengthening the working capital for SMEs and MSMEs. Small businesses face several challenges to avail credit in traditional banking, which they can overcome by signing up on the KredX platform.
Off-the-Books: The significant feature of the KredX Invoice Discounting platform is that it offers a zero-liability bill discounting service that doesn’t impact your balance sheet. Such types of advances are not provided in any traditional banking institutions.
Shorter Cash Cycles: The working capital management for SMEs and MSMEs becomes a challenge when it comes to traditional banks, which no doubt extend advances on the shorter cycles but also charge higher interest rates. In contrast, KredX offers timely access to working capital and speeds up business cash cycles at discounted rates.
Business Growth: The entire MSME sector in India, with more than 7.9 million industries comprising a staggering 95% of the total industrial units in the country, has been concerned by slow growth due to difficulties in availing of credit.
KredX offers an innovative solution to the sector by offering advances without any collateral. The platform uses unpaid invoices, converts them into financial securities, and sells them to external investors. This offers low-cash-flow businesses access to instant cash to help grow their business, expand it according to their plans, and improve their working capital management.
How does it work?
The KredX Invoice Discounting platform empowers businesses to raise capital against unpaid invoices. The platform converts those unpaid invoices into financial instruments and sells them to potential buyers/investors. The capital raised as such is given to the businesses.
The bill discounting process at KredX involves the following steps:
- SMEs and MSMEs usually have invoices payable within 30-90 days
- The enterprises have to upload these invoices on the KredX platform
- An external investor buys these invoices at a discounted rate on the KredX platform
- The KredX platform transfers the approved invoice value to the business within 24-72 hours.
KredX’s workflow process demonstrates that it connects businesses with investors by discounting bills of exchange.
To avail of KredX invoice discounting solution, businesses must fulfil the following conditions:
- The businesses must have been in existence for more than ten months.
- The MSMEs must at least have a business and/or provide services to two large-scale corporations in India or abroad.
- They must have a good credit history. A credit bureau score of 650 and above is desired.
- Businesses should have a minimum turnover of 25 lakhs.
Unlike traditional financing, invoice discounting does not incur any debt on the businesses. KredX prevents businesses from incurring any debt as they can avail instant cash by releasing funds locked in unpaid invoices.