The Micro Small and Medium Enterprises (MSME) sector has been significantly contributing to the country’s GDP and has been tagged as the core component of the Indian economy. It accounts for about 50% of the exports of the country and promotes a balanced economic development. However, businesses in the MSME sector are adversely affected by the availability of Working Capital which is the key to run any business, irrespective of the demand and profit of the products or services offered. Its accessibility is even more significant as it decides the future of a business that includes sustenance and expansion.
While MSME lending in India has grown exponentially in the past five years with Gujarat emerging as the top-ranking state in terms of performance and growth potential for MSME lending followed by Andhra Pradesh, Haryana, Karnataka, and Delhi, most businesses in this segment remains underserved
The survival and growth of a business are entirely dependent on its continuity and access to funds which is also known as Working Capital. It is an indicator of the financial position and overall efficiency of an organisation.
The types of Working Capital depends 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 Working Capital 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.
Most prevalent primary sources of financing for Working Capital in India are trade credit, and short-term bank credit. Both these sources have financed more than ¾ the Working Capital requirements 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 crunches and divert their focus to the development of the business. By getting access to Working Capital, you can pay labour costs, outstanding bills, salaries, for regular supply of raw materials, distributor charges, purchasing inventory, hiring new employees, paying taxes, a savior during festive seasons for employee bonus, business expansion and much more right on time.
Invoice discounting for the businesses can aid in:
|Invoice Raised||Upload Invoice||Amount Transferred|
|Vendor raises an invoice against blue-chip companies 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 in 24 - 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|