Working capital is the lifeline for any business looking to ensure uninterrupted operations and sustainable growth. The importance of working capital was reinforced with the disruption caused by COVID-19. Both the outbreak of the coronavirus and its aftermath left tremors that are still experienced by businesses across industries.
As companies are looking to overcome the financial challenges of the past year and reset their growth trajectory, cementing access to working capital becomes all the more crucial. One of the simplest ways to fund day-to-day operations is by accelerating conversion of invoices to cash. Companies are often sitting on cash while they wait to liquidate their receivables. Innovative financing solutions like invoice discounting can help unlock the cash trapped within the supply chain.
What is Invoice Discounting?
Invoice Discounting is the process by which businesses can avail of short-term capital by way of early payments against their receivables. It is a revolving working capital limit that is set for 60-90 days depending on the credit terms between the buyer and the seller.
Seller prepares invoice for goods or services sold to buyers offering invoice discounting facility in partnership with a financial institution like Tata Capital
On acceptance of the invoice, Tata Capital pays an agreed percentage of the invoice value immediately after deducting the interest charges for the credit period.
On the due date, Tata Capital receives payment directly from the buyer and the sellers limit is made available to that amount for future draw downs.
How invoice discounting can help your business in 2021?
Timely access to cash
Invoice discounting speeds up working capital cycle and offers instant availability of funds, which helps in keeping the business operations steady. Sometimes the time period for availing funds could be as little as 48 hours.
This access to quick cash could be used in a variety of ways including procuring raw materials, paying utility and operational expenses, compensating employees for their contribution, and settling vendor payments on-time. The liquid cash can be utilized to stabilize operations and fuel business growth.
Business growth
Invoice discounting can help you grow your business by boosting sales. When funds are available for working capital to ensure smooth cash-flow, businesses can exploit newer opportunities promptly without missing out.
For example, let’s assume a company has just fulfilled a huge order, where the payment is due after a couple of months. The company gets another order, but requires raw materials to execute the same. Funding from invoice discounting could inject funds in the company, and help the business take up this new opportunity, which would otherwise have been lost due to paucity of working capital.
In 2021 as businesses strive to reach pre-COVID levels of performance, it is crucial that they do not miss out on any opportunities for growth. Invoice discounting can help in capitalizing on increased demand and achieving growth targets.
Collateral-free facility
Invoice discounting is an unsecured business loan that is provided bases on the strength of the supply chain linkage. Thus, a business can avail funding without having to provide a collateral.
For small businesses with limited assets to hypothecate this is a boon. Businesses can free up their assets from being mortgaged in a debt trap. Instead, they can use the assets to access long-term financing and secure future growth.
Access to multiple bankers
2021 is a year like no other as businesses across sectors including banking and financial services are looking to recover from last year’s slump. During such unprecedented times, having access to multiple financial institutions can help businesses diversify their sources of capital and make sure funds are accessible when needed the most. Additionally, access to multiple financing institutions through invoice financing provides the opportunity and flexibility for businesses to opt with the financier offering the most competitive terms.
Invoice discounting offers several benefits to help you grow your business. At Tata Capital, we have partnerships and relationships across large set of buyers so that you can avail timely access to capital for your business. If we are not associated with your leading buyer yet, get in touch with our working capital experts to explore invoice discounting options.
Are you ready to tap into your own capital to grow your business?
11 November 2024
4 mins read
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