A lot of factors influence the day-to-day operations of an SME business, the most important being the cash flow. As per International Finance Corporation, the overall financing gap in the MSME space is Rs. 2.93 Trillion and that around 97% of MSME’s in India face a working capital crunch. Long credit cycles can adversely affect the cash situation, and an SMB owner must explore financing options to tide over the situation. One such financing solution is the Invoice Discounting Facility.
Put simply, this method of financing is a short-term borrowing that helps in converting the outstanding Invoices that are due, into immediate cash required for running your SME business.
Exercising the option of Invoice Discount Facility
As a first step, keep all your books in order, and at any point of time know what is the status of your accounts receivables. It is wise to use an App like Moon Invoice, the best Invoice Management, and Payments App, to keep your Financial system in order.
Moon Invoice is a simple, easy to use Invoicing App and Expense Management Software, that helps you generate, manage and track your Invoices and lets you know the status of overdue Invoices. It is not just Top Billing App but is also the Best Time Tracking App.
Reviewing your Invoice Discount Facility
It is important that you review your Invoice Discounting Facility on a regular basis for the following reasons:
Since inception, your business may have grown significantly and may be reporting a higher turnover today. A higher turnover means a lower interest rate. It becomes important to keep reviewing your turnover vs interest rate.
Fees and other charges
Some financiers may charge additional fees such as Legal fees, application fees, etc. which is not justified. There are maybe some other providers who charge a prepayment penalty if repaid early. Shop for the one with the best rates and no hidden fees.
Change in Business
Over time, your business model may have changed. This may impact the process by which you raise and manage your invoices. The terms with which you initially raised Invoice Discounting may not apply anymore.
Changes in your requirements
You may have had a certain set of requirements when you had initially set up the Invoice Discounting service facility. Now that your business has grown or changed, it may lead to a change in your requirements.
Changing Market conditions
New players may enter the market and existing ones may offer new products or features. Look out for the ones whose offerings best suit your needs and shift accordingly.
Look out for the Service providers who do not impose too much control or conditions. It is very important that they do not notify your customers, as it may create a negative opinion in their mind. Also, go for the providers who understand your industry segment well.
To sum up
Invoicing Discounting Service Providers offer a variety of options, with different rates and terms. Be sure to do enough research before choosing the one that best meets your needs. When the business scenario changes, you can review the service providers and make a switch as it might help you save a lot of money in the long run.