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.
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.
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.
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:
||Drawbacks of Short-term credit include:
Working Capital is a necessary factor for the healthy growth of business and smooth operational functioning as it covers the following costs which include:
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.
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.
Invoice discounting for the businesses can aid in:
|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*|
The following documents are required for the onboarding stage
|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|