Finezza Blog

Why Is Supply Chain Financing in Demand Among SMBs and How to Leverage It?

SMBs may have found the perfect product-market fit but are restricted from capitalizing on the opportunity without access to timely funds. Small businesses can benefit from supply chain financing by getting access to instant financing and liquidity in this situation. Accounting standards cover the accounting by the supplier for advances it receives under this arrangement.

Financing is required by all businesses, either as an investment or a working capital source. Working capital is employed to purchase the input materials for production, finance inventory, and bridge the time until customers pay their due amount. That’s why access to suitable financing options is key in global efforts to reduce the finance gap for small and mid-size businesses (SMBs).

In this article, you will understand what Supply Chain Finance (SCF) is and why it is in demand by SMBs.

What Is Supply Chain Finance?

In Supply Chain Finance (SCF), buyers and sellers linked in a transaction can lower financing costs and improve business efficiency.

By participating in this arrangement, buyers approve their suppliers’ invoices so that they can be financed by a bank or other outside party, often referred to as “factors.” These financiers provide both buyers and suppliers with short-term credit to provide liquidity & optimize working capital.

Invoices raised by suppliers to larger customers can be paid more quickly through Supply Chain Finance’s unique structure that uses the strength of the buyer’s business as security for the lender, resulting in a win-win situation for everyone.

Buyers are given more time to repay their balances, while suppliers get faster access to their own funds. On both sides, the parties can use the cash on hand for other projects and keep their respective operations running smoothly.

This has the potential to improve the prospects for millions of SMBs who are held back by a lack of fixed collateral and limited offerings. A lack of financial infrastructure, technological capability, resources, and awareness prevents many emerging economies from offering Supply Chain Financing products despite their popularity in many parts of the world.

Example of Supply Chain Financing

Suppose Company A purchases goods from the seller, Supplier B. Under traditional circumstances, Supplier B transfers the goods and submits an invoice to Company A, which approves the payment on a standard credit term of 30 days.

But if Supplier B immediately needs cash, it may request payment, at a discount, from Company A’s affiliated financial institution using the Supply Chain Finance arrangement.

Financial institutions issue payment to Supplier B and extend Company A’s credit term by another 30 days, for a total credit term of 60 days, rather than the previous credit cycle of 30 days.

Benefits of Supply Chain Finance to SMBs

Supply chain financing provides all the answers that buyers and sellers have been looking for, and it provides an opportunity for the growth and expansion of their respective businesses.

There are many advantages of using the Supply Chain Financing method:

1. The Buyer Can Extend the Payment Terms

If buyers need to, they can make the payment terms longer, which gives them a lot more flexibility when running their businesses. Payments to the supplier are being made on time, allowing them to plan for any business risks that may arise so their cash flow is not interrupted.

2. The Supplier Controls the Cash Flow

Because of supply chain finance, suppliers have a lot more chances of getting paid. Due to the supplier receiving payment quicker than normal, they can invest in the business and remain viable since they are getting paid more quickly.

3. Suppliers Get Lower Interest Rates

The financing is done through the buyer in a transaction done via the supply chain financing model. If the buyer has a bigger business (consecutively a better credit rating), the supplier can get a much lower interest rate than they would get otherwise.

4. Encourage Strong Collaborations Between the Buyer & Supplier

In Supply Chain Finance, each party is committed to the success of the other and to strengthening the relationship. In order to avoid losing their suppliers, the buyer wants to do everything they can to help them so that they do not go out of business. However, companies may have to change how they manage their money when economic conditions suddenly shift.

5. Additional Working Capital for the Business

Supply Chain Finance facilities provide additional working capital for the business by complementing the traditional financing options. Business owners benefit from this type of financing by extending payment terms to clients, purchasing more products with favorable terms, and gaining access to credit.

How Can SMBs Leverage Supply Chain Finance?

Supply chain financing increases transparency in the payment processes, making it easier for the buyers and sellers to safeguard themselves against financial uncertainties. By investing in technology and analytics, both companies can maximise the use of their resources and fill in the credit gap.

Supply Chain Finance facilities can be approved within a few business days after due diligence, allowing your business to move quickly between opportunities.

As part of the application process, the finance company determines:

the creditworthiness of the company,
the cash conversion cycle,
net margins,
and net worth.

This helps suppliers gain access to the facility amount and the maximum number of days to repay the invoices.

How Finezza Can Aid Your Supply Chain Finance Journey

Keeping track of the finances can get difficult if you engage in large credit transactions with your customers. This can make it difficult to grow and run operations smoothly.

Supply chain finance offers a solution in the form of tech-based business and financing processes. This results in lower costs and improved efficiency in such a transaction. It works best when the buyer has a better credit rating than the seller and can thus access capital at a lower cost.

Finezza has developed a wide variety of products, including a Loan Management System that helps banks, NBFCs, and other lenders to

Track and manage credit applications
Facilitate proactive monitoring of loans
Create loan documents to save up time
Provides a complete collection management mechanism
Process KYC documents faster and streamline the entire Supply chain finance process

How Can B2B Buy Now, Pay Later, Twist the Rules of Trade Finance?

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Buy Now Pay Later (BNPL) is now becoming quite popular in the B2B space. Statista estimates that the global market for business payments is $125 trillion.

B2B BNPL added a new twist to the old concept of net payment terms. And today, more and more businesses are using it to purchase everything from office supplies to accounting services.

While this financial model paves the way for greater profitability and lesser risk, it is twisting trade finance rules. So let’s take a closer look.

Trade Finance with B2B Buy Now, Pay Later

B2B BNPL is a type of lending that allows businesses to buy goods and services for which they can pay later. Initially created for the retail space, BNPL is transforming how finance is done in the B2B sector; let’s see how.

1. Transforming the Credit Approval Process

While most industries have experienced digital transformation, the credit approval process in B2B is largely outdated.

The process is manual, which makes it time-consuming.

Often, it takes weeks to collect the necessary information for completing a cheque. If the process is too long, the sale may not even happen.

Compared to the traditional credit model, BNPL empowers firms to simplify and fasten their underwriting process to quickly close the sale.

2. Easy Access to Working Capital for SMEs

Personal savings and high-interest business loans are the traditional methods small and medium enterprises (SMEs) use to access working capital.

But, B2B BNPL offers them the option of availing working capital more conveniently and affordably. It has been set in motion due to specific trends such as increasing acceptability for credit at the transaction time. It is called embedded finance and is made possible by centralised data and API technologies such as GSTIN.

BNPL companies use embedded financing systems and work from the supplier platform. Hence, they act as another payment method for SMEs to obtain credit. Moreover, they connect multiple supplies, which helps in growth.

SMEs can use it to finance their business operations and pay later through EMIs. Moreover, they can save money as BNPL companies charge lesser interest rates.

3. Disrupting the Credit Card Model

According to a report, the global BNPL sector is expected to exceed $1 trillion. B2B Buy Now Pay Later poses a challenge to the inundated credit industry and removes painful points for businesses such as high-interest rates, lengthy credit approval process, etc.

Sellers get the money now for services or products they sell. Also, it removes the risk of nonpayment as the liability is shifted back to the company providing the credit instead of the seller.

It’s also beneficial for consumers as they don’t have to pay at once and can spread the payment over several days or weeks.

4. Enables Quicker and Convenient Borrowing

Compared to term loans, BNPL allows quicker and faster borrowing. Also, unlike credit cards, BNPL has lower interest rates, and the terms are easy to understand for the general public.

For example, term loans fulfil one-time monetary requirements. However, the application process is lengthy and filled with several roadblocks.

5. Makes B2B E-commerce Payments Seamless

Customer experience matters not just in the B2C sector but also in the B2B sector.

The seamless payment process in B2B e-commerce businesses is one such factor which can make or break a sale as payments are frequent with larger order volumes. B2B BNPL provides a smooth checkout experience for the buyers.

6. Making Lending Cost-Effective for SMEs

SMEs require financing to run their business operations, and a common way of acquiring it is through traditional lending models. But, these models are quite expensive as they charge high-interest rates.

Also, businesses have to incur hefty penalties in case of missed payments. Credit cards charge interest rates as high as 48% for late payments.

But, B2B BNPL is paving the way for a cost-effective financing solution as it charges low-interest rates from businesses. Moreover, it charges a nominal fee in case of late payments, with interest rates as less as 0 to 24%.

There are no extra costs such as GST, annual maintenance fee or cash advance in the BNPL model.

In terms of the lending procedure, BNPL has lower eligibility criteria than other models, which means a variety of businesses can adopt this scheme.

What Does the Future for B2B BNPL Look Like?

Although BNPL is in the development stage, it holds a lot of potential as it can help accelerate business growth by reducing friction in B2B payments.

In a conversation with Economic Times, Deepak Jain (Co-Founder of FlexiLoans) shared his opinion about the bright future for BNPL in B2B.

He said, ”We see the B2B BNPL market in two segments – online and offline. While the growth in online B2B commerce will be a strong driver for online B2B BNPL, under the offline B2B BNPL model, we anticipate that 12,000+ strong distributors and 300,000+ wholesaler networks will provide a strong network effect for the proliferation of the product.”

He added, “In addition, many other initiatives by the government, such as GST e-invoicing, Account Aggregator etc., will also provide fantastic rails for B2B transactions and hence credit.”

Particularly, small and medium enterprises can benefit from it as it can improve accessibility to working capital, which will drive profitability.

If you are a small business owner who wants a hassle-free lending lifecycle, use Finezza. We can help you process KYC documents faster, analyse lending risks, manage your credit applications, and streamline the overall lending procedure.

Get in touch with us today for your business financing needs!

Invoice Financing: Top Seven Benefits for Small Business Owners

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Balancing credit sales and liquidity is an unavoidable paradox for all businesses. Small businesses, in particular, might find the task a tall order. It requires diligent management of cash inflows and outflows to ensure the availability of sufficient working capital for the firm’s day-to-day operations. Invoice finance is a short-term borrowing facility that helps to overcome this predicament.

A Brief Intoduction To Invoice Finance

Invoice finance or accounts receivable finance makes future cash flows available for present-day use. Firms use this facility to borrow cash against approved, unpaid invoices and meet their short-term liquidity needs. Lenders pay the invoice value upfront after deducting the margin and applicable charges. When the payments are received on these invoices, the borrower repays the advance amount along with interest and charges, if any.

This article highlights seven major benefits of invoice financing for small enterprises.

1. Prompt Solution To Liquidity Crunch

Invoice finance offers a quick, ‘no fuss-no frill’ facility for raising funds against accounts receivables. The entire procedure is simple and fast, and it usually takes only 24- 72 hours from the time of application to the time of disbursal of funds. Since no collateral is required, many procedural formalities are skipped, resulting in quick processing of the credit facility.

Moreover, the credit is fully serviced as bullet payments when the invoices are settled. This removes the hassle of repaying loans over longer periods.

2. Collateral Free And Easily Accessible

Traditional business financing is usually asset-based and requires collateral for availing of loans. Additionally, lenders often insist on financial statements of past years for credit appraisal purposes. Small businesses and new firms that cannot meet these draconian requirements might borrow from private lenders to meet their fund requirements, which poses a debt-trap risk for them.

On the other hand, Invoice finance provides cash advances to businesses against their unpaid invoices alone. This is especially beneficial to start-up firms that cannot access credit facilities due to the absence of necessary financial statements e.g., previous three years’ balance sheets or two years’ GST return etc.

3. Greater Credit Control And Management

Invoice finance offers firms more flexibility and credit control than any other credit option. Firms can borrow as much money as required and as often as necessary, and they can choose specific customer accounts or specific invoices to finance. Additionally, depending upon the type of invoice finance they choose, firms can decide how much control they have over their payable collection process. This brings us to an important aspect of receivable financing- invoice factoring and invoice discounting, two forms of invoice financing.

In invoice factoring, firms sell their unpaid invoices to lenders, making them responsible for debt collection. The lender advances to the borrower 80% to 85% of the invoice value. The receivables are paid to the lender, releasing the invoice owners from the burden of collections. On receiving the full invoice value, the lending firm will transfer any balance amount to the borrower after deducting interest and charges. The risk of bad debts and late payments is minimized with factoring as the lender is involved in the collection process. They can even run credit checks on your buyer/ client to assess creditworthiness.

Click here to read our article about invoice factoring and how it is changing the landscape for lending companies.

If a business firm opts for invoice discounting, it retains full control of its receivable collection process. The company receives the invoice payment on the due date and clears the outstanding liability with its lender along with processing charges and applicable interest. Using invoice discounting, borrowing firms may receive up to 90% of the invoice value as a loan.

4. Improved Cash-flow Management

With credit sales, funds are usually tied up for 30 to 90 days, depending on the credit period allowed to the buyer. Invoice financing reduces the gap between accounts receivables and accounts payables. Funds thus available are used to clear short-term liabilities like salary disbursal of staff, payment to suppliers, etc. It is also reinvested in the business for growth and expansion.

Small businesses often operate on tight margins. Hence, they cannot provide their buyers with longer credit periods. Timely payment of current liabilities offers leeway for such firms to offer extended credit periods to their loyal customers. Besides, timely servicing of own debts increases the creditworthiness of business firms.

5. More Focus on Core Business

Receivables management uses up considerable manpower, money, time, and effort. Invoice finance provides a quick turnaround of credit to cash so that firms can focus more on their core activity. Instead of chasing debtors, businesses can deploy resources for more productive purposes like improving sales or adopting organizational best practices.

6. Better Margins and Cost Effectiveness Compared to Loans and Overdrafts

Every penny counts in cash-strapped trade situations. Companies will look for the maximum borrowable limit to overcome the cash crunch. Banks and other financing firms often keep 20% to 25% of the assessed value as a margin for loans and overdrafts. Invoice financing offers higher margins, i.e.,80% to 90% of invoice value as advances, which is a better bargain for the firms.

Loans and overdrafts also have recurring service charges collected every quarter. In invoice financing, the service charge or fee (a percentage of the borrowed amount) must be paid only once. With interest rates in double digits, servicing business loans in the long term will eat into the business’s profits. Invoice finance is a cost-effective alternative to expensive business loans.

7. Acquiring Working Capital Without Compromising Balance Sheet Strength

This might sound like a chartered accountant’s jargon, but it neatly sums up whatever we have discussed here. Ultimately, a balance sheet is a business’s health card. Too many short-term debts to cover high levels of short-term receivables is never good for a business. Invoice finance free up locked funds without majorly disrupting the asset-liability balance.

A Quick Glance At Indian Invoice Financing Scenario

Let us wind up with a quick review of the Indian invoice financing market.

The SME sector accounted for nearly 30.50% of India’s GDP in FY 2018-19. In a survey1 conducted among 800 SME units, it was observed that at least Rs. 15 lakh crores worth of invoice funding is needed in the SME sector every year. This data reveals a vast untapped market for invoice financing in India. With the Factoring Regulation Act of 2021 and the online bill discounting platform TReDS (Trades Receivables Discounting System, the government aims to boost invoice funding for SMEs.

Finezza offers comprehensive Loan Management, Loan Organization, and Collection Delinquency Management products for lending institutions, aiming to streamline cumbersome loan processing. Want to find the right product for your lending business? Contact us today!

Why Are Businesses Still Unprepared to Handle Virtual Cards?

Lending Lifecycle Management

Credit cards have always been a risky means of payment. There is always the possibility of loss, theft or misuse.

Enter the virtual credit card. It is a digital proxy card ID that can be used instead of your physical credit card. They are a number of ways to avoid divulging personal information and overspending.

So how exactly do they work? Let’s find out.

The New Age of Credit Cards

A virtual credit card is sometimes referred to as a virtual account number or virtual card number. In a nutshell, it is a single-use digital card number that can be used in place of a credit card. Typically they’re set on a limited number of transactions, and they automatically expire after the set amount of time.

You will not disclose any sensitive information that will risk exposing your bank account to fraud. This added sheath of security is one of the fundamental reasons behind the rage after virtual credit cards. With virtual credit cards, you can easily link your existing account information to make transactions faster and easier. With traditional credit cards, you need to enter your card details like the card number, expiry date, CVV, etc, when making a transaction. But when you apply for a virtual credit card, all that information is generated for single time use.

After the validity of the card is over, the random number that was generated is completely gone and cannot be traced back to you. Virtual cards are a valuable way to keep your personal information protected. They cannot be traced back to your credit card, which is beneficial but poses another problem, which we’ll come back to in a minute.

In addition, virtual cards can be used immediately after they are issued to make payments. Since they don’t require printing or mailing anything to the customers, this saves time and makes the process frictionless for both parties.

Credit Card Market in India

In January 2022, there were over 940 million recorded debit card users in India, which seems humongous in comparison to only 70 million credit card users. Additionally, there are over 450 million PAN card users with credit history. This presents the digital cards to a huge pool of prospective consumers.

You can get your virtual credit card in two ways. The straightforward way is to apply for it through the bank to which your actual credit card is linked. You can also link your pre-existing card to online services that provide this feature. Some of the Indian banks that offer this service are;

HDFC Bank netsafe card

Axis Bank eshop virtual credit card

ICICI Bank virtual credit card

SBI virtual credit card

Kotak netc@rd

The principle is the same in all of them, just different names. Minimum credit starts from as little as INR 100 and go up to INR 50,000 per transaction every day. The validity of these extends from 24 to 48 hours.

If your virtual credit card is ever compromised, you can easily delete it or lock it with a simple click using your main credit card. With virtual credit cards, you’re protected from fraud, can close down cards on request, and have no direct effect on your bank account. They’re safe and easy to use, so you can keep your finances in order. But are businesses ready to shift to digital cards yet?

Challenges for Digital Virtual Cards

The future of digital cards looks bright, doesn’t it? For all the advantages virtual credit cards offer, they come with a new set of problems, here are some of them:

1. Only Applicable Online

One of the main downsides of acquiring a virtual credit card is that it can only be used online. Most brick-and-mortar stores require you to swipe a physical card to make a purchase. Setting up the system to process such transactions could prove cumbersome for businesses. Thus it is only worthwhile in todays time if you make frequent online purchases.

2. Complicated Returns and Refunds

If you need a refund on a purchase made using a virtual credit card, there might be some complications involved. Retailers often require refunds to be made to the account used for the purchase, but since you used your virtual card number, it is no longer valid. Coming back to the problem mentioned earlier, the transaction cannot be traced back to your account; thus, getting a refund is a far cry. In the most cases, you have to settle for store credit instead.

3. Puts Retailer at Risk

When using virtual cards, the merchant is the sole bearer of risk since the products are delivered to the customer before the money is even transferred. The wait time between making the sale and then receiving payment can be long and riddled with anxiety.

Using a virtual card can also be a problem when you have to present the physical card. In cases such as making a hotel reservation or booking a plane ticket requires you to show your card as proof, which can be difficult to do when the card number does not exist anymore.

Whenever you make a payment via virtual credit card, you are also potentially losing the opportunity to build your credit score and other rewards such as cashbacks and gift vouchers

Wrapping Up

Physical credit cards are here to stay; it will be long before virtual cards can replace them. Although virtual credit cards are gaining traction, businesses are still hesitant to put their foot down. One major reason could be a lack of awareness of how they operate and the presence of better-known credit alternatives such as BNPL.

Finezza offers a wide variety of products such as Loan Origination Software and Loan Management Software that helps financial institutions like banks, NBFCs, and other lenders. It tracks and manages credit applications, processes KYC documents faster, and streamlines the entire lending process.

Want to make smarter financial decisions quickly? Contact us today!

Can Supply Chain Financing Resolve Capital Issues for MSMEs?

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Small businesses are the foundation of the Indian economy. The micro, small & medium enterprises (MSMEs) sector contributes to about 30 percent of India’s GDP. But despite being the largest employing faction of the country, they suffer from a lack of financial and regulatory security.

Businesses thrive when they have enough funding and a stable cash flow. MSMEs take the hit here as financial institutions are hesitant to step in because of their high service cost and payback risk. Credit risk assessment can be complex for lenders, as there is often little structured financial and historical cash flow information to work with.

For small businesses, the direct result of the credit gap is a cycle of low profitability and stunted growth, making them vulnerable to even the smallest economic changes. Sadly this is the reality for all businesses.

Considering these firms’ importance in our society, if the economy is to boom, it’s important to extend help by offering solutions to combat capital problems. Over 70 % of the funding required by MSMEs is in the form of working capital. Traditional financial institutions are fail to provide needed loan products that work for these businesses, and that’s when supply chain financing comes in.

Supply Chain Financing For Small Businesses

Supply chain financing refers to technology-based solutions that help lower financing costs and boost business efficiency for both parties involved in the sales transaction. The buyer can help sellers or vendors with 100% advance on their invoice.

When the supplier issues an invoice, the buyer confirms it and has it approved by the SCF provider. The lender makes the payment to the supplier, and when the payment is due, the buyer pays the lender. This helps stabilise the supplier’s cash flow as they get paid quickly. The buyer benefits from this arrangement as they’ve managed to extend the payment terms without harming the supplier’s cash flow.

Let’s understand how supply chain financing can be a game changer for MSMEs.

How is SCF Helping MSMEs?

Supply chain financing can help small businesses to grow and expand their venture. Your business will flourish if you go with a direct lender or work with a third-party lender. Here’s how SCF is helping businesses:

1. Smooth Supply of Goods

SCF is a flexible way to finance your business, and it can be an alternative to traditional bank loans, which may not be available or affordable for your business. It enables the smooth flow of goods between buyers and sellers by eliminating the need for intermediaries in the supply chain.

This means more goods can flow through the supply chain, resulting in lower costs for all stakeholders and better customer service for consumers.

2. Available For Early-Age Startups

Because of their credit history, supply chain funding can be a viable option for early-stage startups, as they often face difficulty in easily accessing financing from established organisations.

The wide range of benefits SCF offers to small businesses, including lower interest rates and faster loan approval times, make it the ideal financing solution for growing startups.

3. No Repayment Schedule

MSMEs benefit from supply chain finance as it allows them to pay upfront and meet their urgent working capital needs. With SCF, suppliers can receive reimbursement for bills sooner, reduce unpaid sales, and increase cash available for future investment. This form of loan does not require a repayment period.

Supply Chain Finance (SCF) offers a wide range of products such as Trade Finance, Factoring, Invoice Finance, and others. The term “supply chain” refers to the fact that SCF involves several companies in the supply chain.

4. Increased Liquidity

The Government of India has launched various credit schemes for MSMEs, but they only provide one-time and non-recurring funds. On the other hand, MSMEs need a constant flow of operating cash to meet their day-to-day needs.

Supply chain finance is based on monthly invoicing and helps MSMEs maintain enough cash to meet their working capital needs.

5. Cost-Effective Source of Capital

So many businesses are attracted to SCF as an option for funding as it can secure low-cost financing easily. Before approving that financing, lenders consider the buyer’s creditworthiness, the link length, and the supply chain’s relationship.

It is a more cost-effective source of funding than traditional forms of financing, fostering close relations between buyers and suppliers. Buyers with good credit can negotiate better terms with sellers. As a result, MSMEs’ cash flow accelerates, and sellers can better contribute to the growth of buyers’ business.

Due to significant transaction and integration costs, SCF was previously only available to large organisations. However, with technological advancement, SCF is increasingly becoming popular among MSMEs and lenders to reduce operating costs. The digitization of SCF procedures such as invoice acceptance, invoicing, and e-payments has significantly reduced SCF’s costs, making it feasible even for small transactions.

Wrapping Up

In India, only 10% of MSMEs have access to formal financing, which accounts for about 40-50% of the credit extended to the sector. The rest of the MSMEs borrow from informal financing sources at differential interest rates. The right set of incentives and support can make more MSMEs eligible for formal credit.

Supply chain financing offers many benefits to MSMEs and provides them with the resilience they need to face a new wave of economic turmoil. Educating MSMEs and their anchors about these alternatives is important to streamline cash flow. Many of these micro-businesses need to scale and become big, and the way forward is to bring supply chain financing on stage with small businesses.

Are you looking to streamline your business’s lending procedure? Finezza offers a wide variety of products such as Loan Origination Software and Loan Management Software that helps lenders smoothly run credit applications and process KYC documents quickly.

Get in touch with us today so that you can make smarter financial decisions.

How Buy Now Pay Later in B2B Transactions Is Unlocking SME Growth

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In the business-to-business (B2B) world, it often seems like big companies have all the advantages. They have more resources, more customers, and more experience. But in recent years, a new trend has emerged, giving smaller businesses a chance to compete: buy now, pay later (BNPL) in B2B.

From Amazon to Afterpay, this type of payment option has taken the retail world by storm. Now, it’s making its way into the B2B space, and more and more small-to-medium enterprises (SMEs) are taking advantage of it. Small businesses are using BNPL to unlock growth and level the playing field against their larger competitors.

So what is buy now pay later (BNPL) and how can it benefit your business? Let’s take a closer look.

Buy Now Pay Later in B2B

Buy now pay later (BNPL) is a type of financing that allows businesses to purchase goods and services when they want, and pay for them later. This can be done in several ways, but the most common model is through instalments. With this type of BNPL, businesses receive the goods or services upfront and then make regular payments until the full amount is paid off.

Initially designed for consumers, this facility is becoming increasingly popular in the B2B space. More and more businesses are using BNPL to pay for everything from office supplies to marketing services. This new payment option is giving SMEs the flexibility they need to grow. With zero per cent EMI schemes, small businesses can make large purchases without putting any strain on their cash flow.

Small businesses are the backbone of the Indian economy, and play a pivotal role in the country’s growth story. They form an integral part of the unorganised sector, contributing 30% of India’s GDP.

How B2B Buy Now Pay Later is Bringing Massive Transformation in SMEs

While big businesses can avail of loans from banks and financial institutions, small businesses find it challenging to get financing at affordable rates. This is where B2B buy now pay later comes in. Here is how the B2B buy now pay later is transforming the SME landscape in India:

1. Easy Access To Working Capital

The biggest challenge for SMEs is access to working capital. They often have to resort to personal savings or take out high-interest loans to finance their business operations. B2B buy now pay later provides them with an easy and affordable way to get working capital.

Also, they can use this facility to buy raw materials or finance inventory and pay later in EMIs. This gives them much-needed financial support and helps them save on interest payments. The unrestricted access to working capital encourages them to invest more in their business and drives growth.

2. Improves Sellers’ Average Order Values

Earlier, small businesses could only offer their products and services on a cash or credit basis. However, with BNPL in place, they can now offer their customers the option to pay later. The seller gets paid upfront while the customer pays in instalments.

This not only helps sellers increase their average order value but also improves customer satisfaction as they are not required to pay the full amount upfront. As a result, small businesses can win more customers and grow their business.

3. Cost-Effective Model

The traditional lending model is quite expensive for small businesses as they have to pay high-interest rates. On the other hand, B2B buy now pay later is a cost-effective financing solution as it offers zero per cent EMI schemes.

Moreover, missed or late payments with credit cards can attract huge penalties, further increasing the cost. In contrast, BNPL providers only charge a nominal fee on late payments. This makes it an affordable and viable option for small businesses.

4. Helps Businesses Go Digital

Since the COVID-19 pandemic, there has been a significant increase in the number of businesses going online. According to Goldman Sachs, consumer demand will propel the Indian e-commerce economy to a $99 billion market by 2024. B2B buy now pay later is helping small businesses make this transition by financing their e-commerce operations.

From website development to online marketing, small businesses can use BNPL to pay for all their digital needs and grow their online presence. This will not only help them reach out to a wider audience but also tap into new markets and generate more revenue.

What’s Next for B2B Buy Now Pay Later

The B2B buy now pay later market in India is still nascent. However, with the growth of e-commerce and the rise of small businesses, it is expected to grow exponentially in the coming years. Regulators and the government are working hard to set up the proper infrastructure for recovering late payments.

The increasing awareness about BNPL among small businesses is expected to drive the growth of this market in India. In the coming years, we can expect to see more small businesses using B2B buy now, pay later to finance their operations and unlock growth.

B2B buy now pay later plan is a game-changer for SMEs in India. It is unlocking growth by providing much-needed working capital, which in turn is driving up revenue and profits. By making it easier for SMEs to do business, BNPL is fostering an environment of entrepreneurship and innovation, benefiting the whole economy.

If you are a small business looking to stream your overall lending procedure. Use Finezza, a cloud-based lending solution that will help you manage credit applications and smoothes the entire KYC process for easy onboarding of your customers.

Contact now to implement a customer-centric lending solution for your business financing needs!