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How Is Technology Vital for the Positive Growth of BNPL Providers

Lending Lifecycle Management

The Buy Now Pay Later (BNPL) option, also known as interest-free loans, became exceedingly popular during the Covid-19 pandemic. Reports suggest BNPL services are expected to cross USD 7000 million in 2022 in India; 22% of consumers bought goods using this option.

BNPL services are popular among the young, tech-savvy population and also those who do not have access to traditional credit options.

With growing consumer awareness and more players entering the BNPL arena, the future of BNPL in India is full of potential. Notably, technology has an integral role in driving and sustaining this expansion.

Why Is Technology Important for BNPL Services?

Businesses are offering Buy Now Pay Later services to attract purchases which customers may have avoided otherwise. E-tailers are witnessing a reduction in cart abandonment rate and a rise in the total order value, which is a testament to the popularity of BNPL services.

The idea of paying for a purchase in instalments is not entirely new. Using innovative technology like open APIs, artificial intelligence, and the cloud is the game changer with benefits like scalability, speed and integration into e-tailer platforms.

A robust technosphere that integrates the above in an intelligent, secure, data-driven and flexible way is essential for the thriving future of BNPL.

Technology And Its Impact On the Future of BNPL

Undoubtedly, the future of BNPL is highly reliant on technology. For it to grow further, it has to benefit retailers and users without compromising aspects like safety and ease of transaction. This is where Technology can aid them.

Here are ways in which technology can have a positive impact on BNPL growth:

  • Real-time Credit Analytics

Online shopping transactions take only a few seconds to complete, with no scope to pause for analysis or make an error. Technology can help BNPL providers gather real-time data to establish the potential buyer’s identity and assess affordability risk.

High-performance analytics is required to deliver faster and more accurate decisions. Moving from basic rule-driven interfaces to Artificial Intelligence (AI) powered decision-making will help Buy Now Pay Later players to gain a competitive advantage.

Effective analysis delivered in real-time can be the differentiator between a profitable BNPL fintech and an NPA-ridden one.

  • Retailer And BNPL Systems Integration

Combining in-store and online BNPL options is an ideal strategy for retailers to boost conversion rates and cart size. The future of BNPL’s success will depend on how successfully retailers and BNPL Fintechs integrate their systems to provide the user with a quick sign-up process and a simple check-out.

Cutting-edge technology will enable seamless integration with the seller’s sites to provide a superior customer experience.

  • Reduce Fraud In Real-Time

A rise in cyber fraud has accompanied the boom in digital transactions. Well-established and accurate systems to detect fraud in real-time are essential for customer and e-tailer safety.

A significant gap between a purchase and the first instalment payment can provide fraudsters ample time to steal data and make transactions before they get caught. Hence, early detection of fraud, ideally within seconds at the point of sale, is critical. BNPL apps employ accurate, quick and scalable fraud score algorithms that sustain a multi-layered approach.

  • Security and Compliance

Cyber security is paramount for all the players in the BNPL chain, especially since this sector is still in the early stage of its lifecycle. A robust security layer in the setup is essential for the safety of the lender and the customer. Measures like data encryption across the transaction chain are critical for preventing cyberattacks.

Currently, the Buy Now Pay Later space is loosely regulated in India. However, its growing popularity among consumers and fraudsters requires regulators to form stricter norms and regulations. Countries like the UK and Australia are looking at rules that impose limits around the BNPL apps to arrest growing customer debt. However, BNPL companies still need to follow strict laws related to data privacy, payment compliance and cybersecurity.

Technology platforms supporting BNPL fintechs should be able to adhere to the current regulations and have the flexibility to enable compliance with future rules with minimum disruption and time.

As the BNPL sector matures, regulations and compliance will increase and become more stringent, meeting all of which will only be possible with scalable technology.

  • Full BNPL Chain Automation

Advanced technology has a crucial role to play in the automation of the entire BNPL chain. All aspects of the customer lifecycle, beginning with transaction approval and going to automated reminders for payment, interest calculation, penalty payments, debt collection, and credit line management, can be automated with the use of technology.

This will help BNPL companies reduce costs and improve customer experience.

Challenges Posed By BNPL 

Buy Now Pay Later offers customers a convenient option to finance products and services. At the same time, it encourages them to buy things they would have otherwise not bought.

As per a study, 47% of those surveyed indicated they had spent more than they would have if the option to Buy Now Pay Later facilities were not available.  The study also revealed that 25% of users of BNPL are financially vulnerable, and one out of four from this group found it difficult to make payments.

Just as technology is essential for the growth of BNPL, it will play an integral part in the supply side by enabling better customer selection and loan management for lenders.

Key Takeaways

Lenders, retailers and other players need a synergetic partnership with BNPL apps for a personalised and hassle-free customer experience.

Technology will play a crucial part in delivering a superior customer experience and aid BNPL Fintech to stay profitable, reduce fraud and adhere to regulations. Innovative products that leverage technology will enable Fintech companies to make informed decisions that aid growth and profitability. An elastic and strong technological base will spur and sustain BNPL growth.

For example, Finezza is one such Loan Origination and Loan Management Software that offers a suite of products that accurately analyse an applicant’s financial transactions, provide comprehensive loan management and streamline delinquency management. It will help lenders make data-driven intelligent decisions about which customers to lend to and manage loans better.

Microfinance: What Lenders Should Consider While Approving a Microloan

Loan Origination System

Microfinance is generally associated with financial inclusion and poverty alleviation. It aims to help individuals and small businesses who have limited access to conventional banking services. In a broader sense, microfinancing refers to providing financial services like access to money transfers and savings accounts, credit facilities, and insurance to the economically weaker segments (EWS) of society. However, in the world of economics, it is often used as a substitute to refer to the loans and advances extended to the lower-income groups for productive or income-generating activities.

Looking back at the history of microfinancing, one can see that the concept’s origins were microloans or microcredits. The program initially started as an experiment, providing tiny loans to financially backward women and small businesses for sustainable development in place of financial aid. Today, millions of people across nations take advantage of microloans to generate livelihood.

Characteristics of Microcredit

Microloans are probably the most significant products in microfinance as they have a considerable impact on the economic progress of their beneficiaries. Microfinance institutions (MFIs) must balance the social objectives of the lending process with the due diligence of credit appraisals to achieve profitable credit portfolios.

Microcredit is different from conventional modes of loans and advances. Therefore, credit appraisals must weigh certain factors to assess the viability and success of such decisions. Before moving on to that discussion, it is necessary to briefly re-visit the features of microloans;

1. The Lacklustre Borrower Profile

The majority of microcredit beneficiaries are from low-income families. Due to demographic or geographic factors, they have very limited or no access to formal credit facilities, proven sources of income, and, consequently, insufficient credit history. Usually, the clientele includes women, entrepreneurs, and artisans from impoverished families.

2. Loans Linked With a Livelihood Activity

The main objective of microfinance is to enable the borrower to generate income. Therefore, monies are advanced for undertaking subsistence activities. Microloans are rarely advanced for consumption purposes.

3. Small Loans for Short Durations

The ticket size of the microloan is very small, and the loan amount usually depends upon its purpose. They have short tenures and get amortised in small and more frequent instalments.

4. Unsecured Advances

Households seeking microloans, with less than INR 3 lakhs annual income, do not need collaterals to secure credit as per the Reserve Bank of India.

5. Capability for Effecting Transformations

Microlending activity can bring a positive transformation in the beneficiary community and economy. It also builds the entrepreneurs’ confidence in entrepreneurial ventures.

Making Microfinance Ethically Profitable

Uplifting the economically underprivileged segments of society is the foundation of microfinance. Traditional MFIs were non-profit, non-governmental organisations (NGOs) or small finance banks and NBFCs, dedicated solely to their social objective. But as financial markets began to evolve, large consumer finance companies and fintech lenders began to enter the micro-lending space. MFIs are now faced with the dilemma of achieving profitability without sacrificing welfare objectives. They can ethically combat the competition and become more resilient by doing the following:

1. Scaling up Their Activities

While microfinance has benefited customers, it has not made an impact on a larger scale. Achieving economies of scale in microlending will ultimately benefit the borrowers. A growing clientele base will increase the profit margins and reduce the cost of funds. MFIs can pass on a portion of these cost savings to their borrowers in the form of lower interest rates.

2. Leveraging Technologies­

Fintech lenders are overtaking conventional MFIs and expanding their customer base with ease. Tech-enabled business models are more agile and scalable. They reduce the cost of operations, increase customer outreach, and promote innovation in product design, delivery, and service. MFIs can scale their operations by harnessing data and tech capabilities.

What Factors Should Be Considered When Approving a Microloan?

A microlending model sustains as long as it is viable to investors. The model will fail for the recipients if it does not work for those lending the capital. MFIs can adapt to market changes by focusing on their asset growth and returns. But such growth should not compromise their fundamental social goals.

Microfinance lenders must examine the following factors to proceed with the credit decision:

1. Identify the Target Beneficiary Group

Market segmentation focuses the resources on addressing the needs of those customers who can maximise the lender’s outreach, returns, and the social impact of the loan.

2. Determine the Amount of Loan

Lenders can bring down the cost of funds and reduce interest rates if loan ticket sizes are bigger. A study on Indian MFIs found that apart from the purpose of the loan, regional attributes, perceived income from the activity, borrower’s education, age, and loan experience and even the distance between the clients’ homes and MFIs’ offices could influence the loan amount.

3. Assess the Purpose

As microfinance lends to low-income individuals, lenders can determine if the activity will generate enough income to cover loan repayment. Moreover, lenders may be willing to advance credit for other reasons if they can relate to it on a compassionate basis, such as covering emergency medical expenses. By analysing the character of the borrower you will be able to make an informed decision.

4. Examine the Credit Score and Spending Habits

The credit score is useful in determining default risk. Microloan borrowers might have insufficient credit histories to get a credit score. Lenders can use borrowers’ bank statements to observe their spending patterns and loan repayment capacity and use it to make the final call.

5. Stay Socially Responsible

MFIs must finely manage lending to the underprivileged without compromising the due diligence of the credit process. Business growth should not dilute credit quality.

The Path Ahead

With the evolving fintech sector and faster technology adoption among the common people, the time has come for the microfinance models to upgrade their core competencies. Many digital payment systems have leveraged their capacities to offer digital microloans to their customers. MFIs must respond proactively to these changes to avoid becoming redundant.

Conventional lenders have the upper hand over digital challengers in the responsible credit delivery of microloans to the underprivileged. However, that advantage may soon vanish as digital lenders catch up. Adopting technologies and customising services according to the changing preferences of the target customers is the only step in the right direction.

Finezza presents cutting-edge products for credit evaluation and lending lifecycle management. Our agile loan management system supports various types of loans like salary advances, virtual credit cards, education loans, supply chain financing, etc. Contact us today to learn how Finezza’s tools can assist your lending business.

Simplify and Scale Your Co-lending Business With Finezza’s LMS

Loan Origination System

The co-lending Model (CLM) of credit is not new to the Indian finance sector. Due to the proliferation of fintech resources and capabilities, the CLM has gained a lot of significance and has emerged as a viable solution to liquidity and access to credit issues. Efficient co-lending Loan Management Systems (LMS) can leverage the inherent capabilities of this lending model and create a win-win situation for all the stakeholders, including banks, NBFCS, and borrowers.

Finezza presents a robust and agile Loan Management System (LMS) that caters to the unique requirements of the co-lending model. We understand the operational, regulatory, and technological prerequisites needed for the functioning of CLM. Our in-depth expertise has integrated these functionalities into our LMS to provide comprehensive and seamless loan lifecycle management. Finezza’s co-lending LMS simplifies complex co-lending procedures and offers numerous competitive advantages.

How Our LMS Enhances the Efficiency of Lending Operations

Co-lending works on the proportionate sharing of risks and rewards of loans between the banks and the NBFCs. This presents challenges in underwriting, loan processing, sharing of interest and charges collected, apportioning costs and risks of loan defaults, etc. The process becomes especially complex when NBFCs have multiple co-lending partners. Implementing these operational intricacies must not trouble the customers in any way. The borrower must interact solely and directly with the lending facilitator (NBFC) throughout the loan lifecycle. Our co-lending compatible LMS takes care of each of these functionalities in the most effective manner.

  1. Simplifies Sharing of the Cost of Funds– The cost and the proportion of funds contributed by each lending partner vary in a co-lending arrangement, and the cost of funds will be higher for NBFCs compared to the banks. According to the RBI guidelines, NBFCs have to contribute 20% of the loans while the banks contribute 80% of the funding. As the repayment starts, calculating the proportionate share of interests, fees, charges, penal interests, etc., from the monthly EMIs becomes challenging. Our platform accurately handles such complex computations.
  1. Provides only Pertinent Reports to the Stakeholders– Our co-lending LMS provides customised Management Information Systems (MIS) for each participant in the arrangement. The platform creates three views of the loan- 100% for the customer, 80% for the bank, and 20% for the NBFCs, giving these parties a clear view of their stake.
  1. Automates the Key Facts Statement for Loans– Finezza’s co-lending LMS automatically generates the mandatory Key Facts Statement (KFS). The KFS contains information, such as the terms, conditions, and participants of the loan, that the lenders must share with the borrower.
  1. Undertakes Regulatory Reporting to Credit Bureaus– In the co-lending model, each lending participant is responsible for the proportional reporting of loans, based on their share, to credit bureaus. Our co-lending LMS effortlessly takes care of this operational hassle.
  1. Streamlines Bookkeeping– Our co-lending LMS platform automates bookkeeping for the lending participants in this complex lending model. It can generate ledger and trial balances aligned with each lending partner’s loan share. At any given time, the bank and the NBFC will know how much the latter owes the former.

Parting Notes

Co-lending presents a huge business opportunity for banks and NBFCs. They can overcome their constraints and capitalise on their synergies to provide funds to many credit underserved customers in the Indian market. This business model’s success depends on the technical competence of your co-lending LMS. Finezza’s Co-lending Loan Management System removes operational inefficiencies and helps scale your lending operations. Contact us today to learn more about how our Loan Management System enhances the co-lending process.

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

Loan Origination System

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

Contact us today to implement smooth and efficient processes for your financing needs!

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.

Invoice Factoring – How It Is Becoming the Next Big Frontier for Lending Companies

Lending Lifecycle Management

It is usual for any business to have a long gap between closing the sale and the actual cash flow. Credit sales are necessary for enterprises to increase sales and build customer relationships.

However, it can lead to inadequate cash for working capital and the growth of the business. One way to overcome this situation is through invoice factoring.

In this article, we will provide information about invoice factoring, how it works, and why it is becoming a frontier for lending companies.

What is Invoice Factoring?

Invoice factoring is a business financing option that allows the business to finance slow-paying accounts and meet short-term liquidity needs. In this process, a finance provider (or factor)  pays the supplier an initial amount ( 80-90%) of the outstanding invoice and takes on responsibility for pursuing the debtor for the collection of debt.

After the invoice is settled in full, the factor passes on the remaining money to the business, minus a small fee for the services provided by the factor. The cash collected by the company helps in avoiding credit and cash flow problems.

It is also known as ‘invoice discounting,’ ‘debt factoring,’ or ‘accounts receivable financing’ (and sometimes just ‘factoring’). It is easier than a traditional bank loan for a business to raise funds.

Invoice factoring is one of the non-banking funding sources which fills the immediate need for capital for new businesses or businesses without a long track record.

Lenders in this segment accept invoice factoring applications from different businesses considering the current sales volume and the growth potential as a means to approve financing.

Benefits of Invoice Factoring for Lending Companies

Invoice factoring is advantageous to lending companies because the money that they supply to a business is backed by the collateral of the invoice. Suppose the customers of the business pay their bills on time. In that case, the cost of recovery goes down significantly for the lenders, and they can enjoy a better profit margin while collecting payments from the customers.

The lenders simply need to wait out the time period for payments by the buyer to complete the transaction and make a decent profit in the process (with the only exception being the case in which the buyer fails to make payments on time; in such a scenario, the lending company will use its resources to recover the cash).

Benefits of Invoice Factoring for the (Supplier) Businesses

  1. Easy Availability of Cash

An invoice factoring arrangement provides the company with quick access to working capital. This can reduce the risk of missing important payments such as payroll or supplier invoices and increase credibility.

It is extremely difficult for businesses to wait on payments from slow-paying customers, especially if they make up a large part of the company’s balance. Invoice factoring can provide a sense of regularity to the collections process and reduce problems caused by late-paying customers.

  1. Lower Risk of Bad Debts

Businesses that don’t have the resources to recover missed payments from their buyers/clients may end up with bad debts. With the secure option of Invoice Factoring and an accountable third party (lending companies), businesses can avoid this risk and expand operations by bringing in new clients.

  1. Ideal for Seasonal Businesses

Invoice factoring is best suited for businesses that primarily deal in seasons rather than whole-year around. Outstanding invoices can be used to quickly obtain funding for raw materials and make payments to suppliers.

It can help these types of businesses alleviate the cash flow problems arising from slow-paying clients.

Wrapping Up

Several companies often end up with a cash constraint if they don’t have access to traditional bank loans or lines of credit due to slow-paying customers or extended payment terms. Invoice factoring is being used by businesses to secure short-term financing using their invoices as collateral. The lending companies also enjoy a decent profit margin by leveraging their resources.

Finezza has developed a wide variety of products, including Loan Origination Software and Loan Management Software that helps banks, NBFCs, and other lenders track and manage credit applications, process KYC documents faster and streamline the entire lending process.

To implement smooth and efficient processes for your financing needs contact us today!