Access To Working Capital For Your Businesses Made Easy

The Micro Small and Medium Enterprises (MSME) sector has been significantly contributing to the country’s GDP and has been tagged as the backbone of the Indian economy, especially the secondary sector. It accounts for about 50% of the exports of the country promoting a balanced economic development. MSME lending in India has grown exponentially in the past five years. Gujarat has emerged as the top-ranking state followed by Andhra Pradesh, Haryana, Karnataka and Delhi. Other states with high potential include Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Jammu & Kashmir.

The obstacle that affects businesses in the MSME sector is the availability of working capital which is the key to run a business irrespective of the demand and profit of the products or services offered. It decides the future of a business that includes sustenance and expansion.

What is Working Capital?

The survival and growth of a business are entirely dependent on the continuity and access to funds or very commonly called as working capital. It is an indicator of the financial position and overall efficiency of organisations.

Types of Working Capital:

The types of working capital are based on the balance sheet or operating cycle view.

Balance Sheet Operating Cycle
Current liabilities minus Current assets featuring in the company’s balance sheet Here, the working capital is classified into temporary and permanent
Gross Working Capital is Current Assets in the balance sheet Temporary refers to the difference between (net working capital and permanent working capital) and permanent (fixed assets) working capital.
Temporary working capital can be further categorised into reserve and regular working capital as well.

Primary Sources of Working Capital Finance:

The primary sources of financing the working capital in India are trade credit, and short-term bank credit stated to have financed more than ¾ the requirements of working of Indian industry.

Trade Credit Short-Term Credit
Most prevalent form of financing for many businesses. It’s a B2B agreement wherein a customer can purchase goods on an account without paying cash upfront and instead pay at a later date, say, either 30, 60 or 90 days. Short-term bank credit or bank loans are the second most preferred form of financing for businesses. It normally signs a guarantee specifying the amount of the loan, the interest rate being charged, and the due date.
Drawbacks of Trade Credit while extending credit for buyers includes:
  • Negative effect on Cash flow
  • Must Investigate Creditworthiness of Customers - Analysing the credit ratings of customers for extending the terms of payment
  • Monitoring outstanding accounts receivable on extending credit
  • Financing Accounts Receivable - Buyers failing to clear debts will force the vendors to finance the receivables
  • Possibility of bad debts
Drawbacks of Short-term credit include:
  • The lending process involves several steps and questions on the part of the banker
  • Applicable only for single-purpose immediate needs
  • Credit might be denied if the credit rating is poor
  • Interest rates are high with a high monthly payment
  • Can affect your Credit Score
  • Can force you to become a seasonal borrower

What Are The Advantages of Working Capital?

Working Capital is a necessary factor for the healthy growth of business and smooth operational functioning as it covers the following costs which include:

  • Payroll
  • Rent
  • Debt payments (principal and interest)
  • Supplies
  • Taxes
  • Other overhead costs

Working capital is the backbone of any business and its availability decides the future of its performance and longevity. KredX offers a feasible solution in the form of Invoice Discounting or Bill Discounting.

How Does It Benefit The Businesses And Working Capital Lifecycle?

The concept of invoice financing or bill discounting is a favourable option for businesses to alleviate cash crunch and divert their focus on the development of business. By getting access to the working capital you can pay the labour costs, outstanding bills, salaries, distributor charges and much more right on time.

How Invoice Discounting Helps in Getting Working Capital For Businesses:

Invoice discounting for the businesses can aid in:

Unlocking Money By Clearing Unpaid Delivery Invoices:

  • 1. Get access to quick working capital within 24-72 hours
  • 2. Consistent cash flow requirements with no collateral
  • 3. Optimal use of your unpaid invoices

Better Management Of Supply Chain:

  • 1. Mobilise the supply chain with access to working capital at all times
  • 2. Seamless running of the supply chain from transportation costs to deliveries
  • 3. Satisfied customers due to lesser efficiency gaps

Fuels Business Growth By Getting Access To Liquidity:

  • 1. A surge in the number of orders due to timely payments
  • 2. Business growth due to more sales
  • 3. Larger fleet to complete orders

How It works:

Invoice Raised Upload Invoice Amount Transferred
Vendor raises an invoice to the customer that is payable within 30 - 90 days. Post KYC and successful on-boarding, vendor uploads an unpaid invoice on the KredX platform to get financed. Funds get credited into vendor’s account in24 - 72 hours*

Eligibility Criteria?

  • Business should be at least 10 months old
  • Business should cater to at least 2 large-scale corporates
  • CIBIL score of 620 and above
  • Business should have a minimum turnover of 25 lakhs

Documents Required?

The following documents are required for the onboarding stage

Pre-Sanction Stage*:

  • KYC of directors
  • CIBIL record of directors
  • Proof of address and PAN Card of company
  • Bank statement of the last 12 months
  • Books of account/audited financials
  • Sales data for the last 1 year
  • Loan Declaration

Post-Sanction Stage*:

  • Board Resolution
  • Post-dated cheque
  • Tri-partite undertaking involving KredX
  • Memorandum of Association and Article of Association
  • Personal guarantee letter
  • Articles of association

Advantages Of KredX:

Collateral-Free Working Capital Off-The-Books Shorter Cash Cycles Business Growth
Gain access to quick working capital using your unpaid invoices through invoice discounting in just 24-72 hours* KredX offers a zero-liability bill discounting service that doesn’t impact your balance sheet Receive timely access to working capital and speed up your cash cycles for business success Say hello to business growth and expansion with timely access to money

FAQs On Invoice Discounting:

Any business that supplies goods/services to large blue-chip companies can avail the bill discounting services provided by KredX. Eligibility and amount of discounting is governed by the creditworthiness of the business and therefore they should be willing to share their financial information and other related documents.