
Small-scale industries, or MSMEs, contribute to the economy and its development in a variety of ways. Starting from innovation to employment generation, the role of these businesses cannot be undermined. However, despite their contribution, these industries and businesses still struggle and go through quite a hassle to secure finance. Financial restrictions limit their operations and also their opportunities to grow and expand.
To help these businesses secure funds and overcome their financial struggles, a GST-based bill discounting system was introduced. Using the GST-based bill discounting system, companies can use their unpaid invoices and in turn, secure reliable financial support.
Curious to know more about the GST-based bill discounting facility? Read on as we explore more on the GST-based discounting system, its meaning, advantages of bill discounting, and much more.
How Has GST Implementation Affected Indian Businesses
The implementation of GST has proved to be beneficial for Indian businesses in a variety of ways. Wondering how? Well, let’s see. GST is designed with a centralised structure, meaning several different taxes have been combined into one. Thus, making it more easy and convenient for businesses to comply.
Additionally, GST has eliminated the taxes on advances for businesses. It has introduced several other benefits, like easing the transportation of goods and so on.
Further, businesses may now use a single filing per year with also benefits in the tax rate. Tax relaxation plus additional finance in the form of bill discounting can help businesses grow and succeed the way they plan.
Bill Discounting: What is It?
Now, before we go ahead and explore the benefits of bill discounting, let’s first understand its meaning. What is bill discounting? Well, in most simple terms, bill discounting can be understood as a procedure allowing businesses to secure funds against their accounts receivable or unpaid invoices.
Bill discounting can be understood as one of the procedures under invoice financing, which is further categorised into invoice factoring and invoice discounting.
Now let’s understand how bill discounting works. Well, by availing of the GST-based bill discounting system, you may use an advance offered by some service provider. This advance can be anything ranging between 80% to 90% of your unpaid invoices, however, these invoices still stand to be yours. Now, once you collect these unsettled payments from your customers, you can use the same for repayment to your service provider.
Let’s understand bill discounting with an example. Say your business has outstanding invoices for ₹50,000. Now, you may use the same and immediately avail of advances of around ₹40,000 by a bank. For the remaining amount, you may get the same once your customers clear their payments.
Here, if a business sells certain items to their customers on credit, then by using a bill discounting system you do not have to wait for the credit settlement. The credit settlement might take up to 60 to 90 days. Instead, you may simply use these invoices to avail of bank advances.
How GST-Based Bill Discounting Can Help?
For small-scale businesses or MSMEs, it is not always the best option to secure loans from traditional lenders. Not only do they charge higher rates of interest, but different lenders also have different eligibility requirements, interest requirements, and more which can be burdensome for these small businesses. Therefore, limiting their growth opportunities. In cases like these, comes bill discounting. Here are some cases where GST-based bill discounting can help:
- Collateral- Free Access to Funds
Using a bill discounting system, you may secure funds from the majority of financial services providers without any solid collateral. Thus, making the process easy and convenient for you. Additionally, the documentation process is also simple and minimal, meaning you do not have to go through much hassle. Further, making it one of the most preferential choices in case your business needs emergency funds.
- Converting Unpaid Invoices into Assets
One of the most common problems with small business owners is that they have to struggle a lot chasing their unsettled payments. In fact, in some cases, the companies don’t even have adequate financial support to ensure such situations.
However, using the bill discounting system, you can use these unpaid invoices to your advantage. Such unpaid transactions can help you immediately secure funds to continue your daily operations.
How is Bill Discounting Beneficial for MSMEs?
Bill discounting, or what is also known as invoice discounting is beneficial for MSMEs in a variety of ways. Here are some of them:
- Improved Cash Flow
Using a bill discounting system, you may easily and quickly turn your unpaid invoices into cash. This can be used to cover the day-to-day expenses of your business, invest in growth opportunities, and do much more. Thus, helping improve your cash flow. Additionally, with the GST-based bill discounting system, you also don’t have to keep waiting for your customers to settle their bills.
- Reduced Risks
Many of you might not be aware of this, however, invoice discounting is also helpful in reducing risks. Wondering how? Let’s see.
First, you need no collateral for invoice discounting. This means you do not have to risk your assets, including your real estate, inventory, or more. Second, it improves your cash flow helping you tackle emergencies and maintain liquidity. Further, with invoice discounting, you may easily borrow anytime you need without being restricted to a fixed repayment regime.
Bottom Line
Bill discounting systems can help businesses in several ways. It is one of the most helpful and effective financial instruments that can help you improve your cash flow, control risks, convert your unpaid settlements into assets, and much more. Further, you need not go through rigorous documentation or arrange heavy collateral. However, before you try to avail of invoice discounting, make sure you understand the eligibility requirements and have valid invoices. Once you understand how this works, what are its benefits, and what are its requirements, you can make better use of the service. Leverage the benefits of a bill discounting system and let your business sustain and succeed.