Due to the heritage structure of the Indian Banking System, a lack of collateral, poor credit history, etc., MSMEs have always had difficulty obtaining quick and easy finance. Moreover, MSMEs require enough working capital 80% of the time. Supply Chain Finance's arrival has allowed Indian MSMEs to expand and thrive in a supportive atmosphere, putting them in the international arena.
MSMEs can access finance more effectively by utilizing Supply Chain finance (SCF), minimizing their reliance on other funding sources. It enables them to take care of their instant working capital requirements and make payments. SCF is a model that offers consistent and ongoing access to capital for all needs. Compared to private lenders, SCF from Skyscend costs less.
Once the SCF line has been established, the money requirement can be met in a matter of hours, freeing up funds that could be used to expand operations, restock supplies, or buy additional raw materials. Supply chain finance focuses on monthly invoicing, which enables MSMEs to consistently maintain a sufficient cash flow to meet their working capital requirements.
What does the future hold for MSMEs in the SCF?
Using the latest technologies like Blockchain and AI for various supply chains operations, such as dynamic routing, real-time deliveries, efficiency prediction, and inventory control, will surely increase in the market.
The usage of IoT to track the location and condition of delivered cargo will also increase. Using cutting-edge technology like IoT to monitor the movement and state of perishable cargo is priceless.
Blockchain technology offers decentralized, immutable digital storage and distribution of all required shipping documentation, preventing data manipulation.
Supply Chain Finance for MSME
Supply chain financing refers to technology-based solutions that enable both parties to a sales transaction to reduce financing costs and increase business efficiency. For example, buyers can give sellers or vendors 100% of an invoice's advance.
The buyer confirms the invoice once the supplier issues it and requests SCF provider approval. When the payment is finally due, the buyer pays the lender. Finally, the lender releases the cost to the supplier.
As a result, the supplier's cash flow is stabilized, and they receive prompt payment. This arrangement benefits the buyer by allowing them to stretch the payment terms without negatively impacting the supplier's cash flow.
How does SCF support MSMEs?
Small firms can expand and grow with the backing of supply chain financing. Choosing or working with a third-party lender will help your business grow. Here are some ways that SCF aids businesses:
1. A seamless flow of goods
SCF offers your company a flexible alternative to typical bank loans, which might not be accessible or inexpensive. In addition, removing the need for mediators in the supply chain makes it possible for items to move between suppliers and buyers without any disruption. As a result, more products may move through the supply chain, lowering costs for all parties involved.
2. Open To Early-Stage Businesses
Supply chain financing from Skyscend might be a good choice for early-stage entrepreneurs due to their poor credit history, as they frequently need help to get investment from well-established companies.
SCF is the best financing option for expanding companies due to its extensive benefits to small firms, including reduced interest rates and quicker loan approval timeframes.
3. Greater Liquidity
The Indian government has introduced many lending programs for MSMEs. However, they only offer one-time and non-recurring funding. MSMEs, in contrast, depend on a steady stream of operational cash to cover their regular expenses.
The use of supply chain finance, which is built on monthly invoicing, enables MSMEs to keep their cash flow healthy.
4. Cost-effective Capital Source
SCF is a popular funding option for businesses since it makes obtaining low-cost borrowing straightforward. However, lenders weigh the buyer's solvency, the link length, and the connection to the supply chain when approving that financing.
Compared to more conventional sources of finance, it is more affordable and promotes close relationships between consumers and suppliers. Better terms can be negotiated with sellers by buyers with solid credit. As a result, MSMEs' cash flow quickens, and sellers can better support the expansion of buyers' companies.
5. No Repayment Plan
Supply chain financing benefits MSMEs by enabling them to make upfront payments and take care of their immediate working capital needs. Using SCF, suppliers can boost cash for future investments, decrease unpaid sales, and obtain compensation for invoices more quickly. In addition, there is no time frame for repayment with this type of loan.
Do you want to simplify the lending process for your company? We offer a variety of solutions, like supply chain financial solutions, including trade financing, invoice factoring, invoice financing, working capital solutions, and others. To help you make better financial decisions, get in touch with Skyscend right away.