Invoice discounting platforms allow enterprises to make early payments to their suppliers at a discount
Ajay Adiseshann, Founder & CEO, PayMate (@aj_meister)
Over the last six months, businesses globally have been forced to navigate through uncharted terrain where managing working capital has become critical for survival; followed by the biggest economic slump brought on by the Covid-19 pandemic since the great depression. In India, a recent Atradius reports[1] stated that over 55% of large enterprises delayed supplier payments against pending invoices.
The outbreak also exposed many inadequacies and inefficiencies in supply chains such as archaic manual processes, long and delayed payment cycles, poor risk mitigation, weakened cashflows resulting in broken supply chains — a situation that has become even more aggravated in the recent times.
However, on a positive note — the pandemic has fueled digital adoption in supply chains which had been severely impacted operationally and financially. Businesses earlier resistant to change, now realize that digital adoption could have cushioned the covid impact.
Solutions that helped businesses
In order to ease cashflows in supply chains, large enterprises have to bridge cashflow gaps and create payment certainty. One way this can be done is by using invoice discounting platforms such as ours which allows large enterprises to make early payments to their suppliers at a mutually negotiated discounts using technology. With payments being deployed the same day, the cycle of liquidity begins once again with relative ease and minimal disruption while availing the following benefits:
● Non disruption of supply chain cycles — It’s tough for suppliers to secure working capital funds from banks or financial institutions and are therefore forced to source funds from the market at exceptionally high rates. Alternatively, they can request for early payments on certain unpaid invoices simply by offering a discount. The later seems like a viable option as they get on-demand payments thus fueling in their cashflows.
● Create economic activity — Instead of keeping funds idle, large enterprises can deploy it towards unpaid supplier payments. This in turn has an exponential effect, from a macro economy point of view wherein they inject liquidity in the supply chain ecosystem.
● Value erosion — The value associated to all unpaid invoices is far lower and in order to ensure it stays intact, funds should be made available to SMEs/suppliers. This is possible when buyers or large enterprises make payments towards their unpaid invoices thereby ensuring the value of the money being paid is higher.
● High level of supply chain activity — Availability of working capital funds lead suppliers to fulfill their orders at a faster pace, in turn increase the overall activity in the ecosystem and fueling the economy.
Based on these benefits, it’s evident that early payment of invoices through invoice discounting platforms help SMEs to manage their working capital, make informed decisions and minimize the inevitable disruption caused by late payments. Nearly 34% of the SMEs are willing to take early payments to overcome gaps in their cash flows according to a recent survey.
This demand has ushered in the necessary automation, innovation and disruption for outdated manual systems.
My observations of 2020 and predictions for 2021
2020 has witnessed a massive surge in adoption of digital payments technologies by businesses and consumers alike. However, access working capital remained a challenge, hitting the overall macro economy hard.
As businesses gradually got on their feet from July onwards, there has been reduction in traditional payment methods such as cash and cheques (reduction by 3% in retail cheque payments). Migrating to digital platforms helped them to automate their payments functionality right from creating and sending digital invoices and accepting payments. Thus, its evident that businesses who weren’t willing to switch due to digital mediums earlier due to inertia, now have been forced to implement new automation methods.
As we get gear up towards a new year, I am sure that this wave of embracing to digitization and automation platforms for businesses will continue. A recent Cisco India SMB Digital Maturity Study 2020[2] highlights that 68% of Indian SMBs seek to digitally transform to introduce new products and services, differentiate themselves from the competition and grow, while 60% recognize that competition is transforming and they must keep pace. The study also states that digitalization of small and medium businesses (SMBs) could add up to US $216 billion to India’s GDP by 2024 thereby contributing to the country’s economic recovery post-COVID-19.
[1] India: bleak outlook for customer credit risk in B2B trade — Atradius Payment Practices Barometer
[2] CISCO 2020 Asia Pacific SMB Digital Maturity Study
