Getting your first business order is like the typical chicken and egg situation. To earn money, you need your first order, and you need money for completing your first order. So what comes first?
Usually, small business owners bootstrap their businesses with savings of a lifetime. But bootstrapping is not a viable option for many.
Many leading financial institutions have built the platform and network required to provide unprecedented working capital solutions. As a business owner, you must have gone through countless struggles yourself. Delayed payments from buyers, poor raw material quality, customer complaints, and employee turnover are just some of the problems an entrepreneur faces. But there is a solution for your cash needs. That is where invoice discounting comes in.
What is Invoice Discounting?
If you have just completed your first order on credit, you might not even have enough cash available for undertaking a second. And this is a big problem because it impedes growth and ruins relationships with all the supply chain participants.
Supply chain financing hopes to convert the shackles of delayed payments from buyers to opportunities of immediate cash availability. To solve the typical business problem we discussed, lenders provide business loans in the form of immediate cash payment after deducting interest or discounting charges. You can compare this mechanism with an SME loan where business loan interest rates are charged. An invoice discounting facility is provided with the hopes of recovering money from the buyer at the agreed-upon tenure.
How Can Early Payments Help Your Business?
Now that we have understood how invoice discounting works, let us know how it can take your small business to the next stage in the game.
1) Opens up business opportunities
There are so many things that you can explore with additional cash availability. You should not keep the cash idle as money invested wisely can help you beat inflation.
- You can check out investing options available in the market – mutual funds, equity, debt, real estate, gold, or even cryptos.
- You can procure better quality raw materials and improve the time to deliver goods to consumers.
- Consider better quality talent acquisition and paying perks to employees to keep them motivated.
- You can spend money on market research and improve product-market fit.
- Improving business sales through advanced marketing techniques.
And the list goes on. You can even venture out into different product offerings and improve your market presence. Opt for invoice discounting before it is too late!
2) Improves relationships
When you pay your suppliers, lenders, and stakeholders on time, you keep them happy and stay ahead of the competition. When your suppliers acknowledge consistent payments from your end, they might choose to reward you by providing better procurement terms. You get the upper hand over the others as the suppliers might even compromise a little in difficult times. Regular dividends keep stakeholders delighted, and the company prospers as a result.
3) Reduces employee turnover
Employees are the drivers running the engine of your business. When you choose to share the rewards of business growth with your employees, they feel part of an organization and want to work harder for your business.
4) Collateral free money supply
Many times it becomes challenging for small business owners to arrange for collateral to avail of loans. With the limited number of assets they possess, they don’t want to part with it. Invoice discounting is unsecured, hence collateral-free.
So, you can use your assets to generate business returns strategically.
You can also consider an EMI facility. Ensure you check your business loan eligibility before applying for a business loan. Your lender’s business loan EMI calculator will help you through the process.
Conclusion
Times have been tough for small businesses. But when you make the right decisions, your business grows exponentially.
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