The most challenging job for small business entrepreneurs is keeping a steady cash flow without enough working capital. Resources are often very scarce in small businesses. As a result, individuals typically lack the resources to handle adverse financial surprises. Unfortunately, a firm must frequently deal with cash flow issues like late payments, equipment breakdowns, unanticipated fees and taxes, and other issues.
Short-term loans are given to companies as part of the supply chain financing (SCF) funding instrument so they can grow their operations and satisfy increased demand. Supply chain finance is becoming more popular among small firms since it allows them to grow without needing commitment-heavy contracts or repayment plans.
Supply chain finance solutions function similarly to cash loans. However, financial companies can pay suppliers more quickly thanks to invoice financing since they can place bets on the buyers' creditworthiness or other security. While extending payment terms for purchasers, we at Skyscend offer numerous solutions like supply chain finance to sellers and smaller enterprises.
MSMEs and issues with working capital
While banks encourage lending to companies with investment-grade credit ratings because they believe it is smart to lend to larger organizations, they feel differently about small and medium-sized businesses. As a result, the majority of downstream channel participants, such as suppliers, distributors, and dealers, particularly in metro cities, continue to struggle with both limited working capital and rising inventories.
This financial squeeze issue is only made worse and complicated by rising inflation and a lack of available jobs. MSMEs and the agriculture industry bear the brunt of this impact, owing to more significant increases in input costs, production costs, logistics expenses, and inventory costs, even though this effect is seen across the board.
The Popularity of Supply Chain Finance
In 2020–2021, the e-commerce sector saw growth, raising the supply chain finance demand. It led to the development of new fintech solutions by financial institutions to fund supply chains through technology and digitization. Numerous financial organizations were able to access more resources without increasing their funding costs thanks to cloud-based apps.
Global trading customs have changed to "Open Account," making providing items easier before receiving payment. This draws in more clients that wish to use adaptable trade financing methods in the supply chain cycle as it suits them. In India, the supply of credit to priority industries is supported by the RBI's Co-Lending Scheme, which allows banks and NBFCs to co-lend jointly.
Supply chain finance solutions prevent the banking system from having to absorb all business losses. Additionally, this causes banks to pursue legal action against the borrower for unpaid debt. The borrower now has the following two choices:
1. To finish the debt settlement process quickly so that business can resume, or
2.Permit the banks to take absurd write-offs (or haircuts) on repayments. The borrower's business is forced to close as a result.
Platforms for Supply Chain Finance like Skyscend facilitate this process by offering focused, function-specific solutions instead of broad offers. By utilizing technology and agility, they make funding simpler for all international participants. In addition, they make real-time business expansion easier by utilizing platforms for debt facilitation innovation.
Finding the Right Business Partner
To lessen their exposure to trade financing, banks will likely continue down the same path they have been traveling for the past few years. This makes it an ideal moment to investigate how fintech might help identify market patterns, forecast demand, and take necessary action to address working capital difficulties, even though businesses are relatively optimistic about the post-COVID-19 recovery process.
Technology-driven platforms are bolstering the start-up and MSME ecosystems by enabling lenders and investors to invest in these companies' supply chains, even if India's path to supply chain financing may be difficult and time-consuming. In the upcoming years, supply chain finance technology will be the foundation of this dependable and investable asset class.
How Skyscend can help your Supply Chain Finance Journey
A business owner can control their cash flow by using supply chain finance from Skyscend. In addition, it makes it simpler for individuals to maintain their financial stability and make on-time payments on their bills without stressing out about how they will manage additional expenses in the future.
SCF increases a company's financial flexibility by enabling them to access cash, when necessary, all without compromising security or stability in any manner. Companies need working capital for their operations, and Skyscend understands the importance of supply chain finance. Skyscend platform provides an option to choose funding from multiple options. Contact us to know more.