The outbreak of Covid 19 and its aftermath have ushered innumerable challenges for the majority of small businesses. Nationwide lockdowns and disruptions in operations and supply chain management impede the revenue-generating capacity of companies across industries.
We all know cash flows are the fuel for any business. But the global crisis has strained the cash flows of small businesses, and the uncertainty continues in 2021 as the pandemic prolongs. Alternative means to improve liquidity, such as supply chain finance and invoice discounting, are gaining importance and adoption to overcome this cash crunch.
Adequate access to working capital can help in reviving the financial health, minimize disruption and develop financial resilience for both buyers and sellers across the supply chain.
Supply Chain Finance is a financing solution offering early access to funds to the seller while extending credit terms to the buyer. It is a win-win solution as it helps both parties of the supply chain operate optimally without strain on capital or resources.
Early payments against invoices for which the goods or services have already been rendered can help small businesses optimize cash flows and stay afloat.
Here’s how early payments can benefit small businesses:
Helps meet operational expenses.
No cash means no business. Early payments help stabilize operations and eventually fuel growth.
Sufficient access to working capital can empower businesses to make timely payments to suppliers, procure raw materials to service new orders, pay wages on time, or meet utility and other operational expenses without stress.
Helps set up business for growth.
With the availability of substantial funds to keep its operations running, businesses are placed in a comfortable position to exploit newer opportunities. As long as companies are in survival mode, growth is not an option. With access to adequate working capital, businesses with steady operations can focus on expansion.
At Tata Capital, we offer seamless invoice discounting solutions to small businesses at competitive rates of interest. Reach out to our representatives to know more about how we can help companies meet their working capital needs.
All businesses, big or small, rely on their supply chain ecosystem for continued sustenance. In times of crisis, it might seem easy to delay payments of suppliers and other stakeholders in the short term. However, businesses with foresight would know that this is not a sustainable practice in the long run.
Access to additional working capital funds through early payments can help businesses struggling financially to have an adequate buffer to pay their suppliers on time. Prompt supplier payments in challenging economic scenarios help build trust and confidence, and strengthens the buyer and seller relationship.
A business can gain from the uninterrupted supply of raw materials, improved pricing and other terms, and priceless goodwill by ensuring timely payments. Maintaining good supplier relationships is vital to the stability of business operations and for continued growth.
Helps maintain improved employee relationships.
A solid employer-employee relationship lays the foundation of any successful business. Timely payment of wages and salary enhances productivity and boosts employee morale. Employees remain motivated and focus on working efficiently to achieve the organizational goals and objectives.
Undoubtedly, employees are an invaluable asset to an organization, and it is essential to keep them motivated and invested in the shared goals.
Helps reduce the cost of borrowing.
Early payment through supply chain finance also gives a financial benefit of reducing the cost of financing. A good credit rating of the buyer can enable businesses to source capital from financial institutions at a lower cost. Besides lower costs of funding, companies can access loans with no recourse and minimum collateral requirements.
The last year has been difficult for all businesses, especially small and medium enterprises. As the economies look towards recovering from the consequences of the pandemic, companies must focus on having adequate access to working capital to aid in faster recovery.
During such unprecedented times, having access to multiple lines of credit, including early payments, can help businesses make sure funds are accessible when needed the most.
At Tata Capital, we have partnerships across large buyers in the country 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 representatives to explore setting up supply chain finance options for your trade relationships.
27 May 2021
4 mins read
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