Importance Of Invoice Discounting

The MSME sector in India has always been struggling to find a smooth working capital flow. More than for growing the business, MSME businesses want the payments to run the existing workload. This has stopped many potential organizations from growing to their peaks.

Some businesses which take a leap of faith go for a business loan to meet their working capital needs or even to be capable of taking up new business opportunities. This instead of helping the business, puts it under the burden of heavy interest rates which are stricter than the payment cycles of the Corporates.

But, what came into play is the introduction of TReDS platform for discounting approved invoices for a factor of the payment amount. The Indian government has embraced the platform and has allotted three service providers to take charge of it.

What is the importance of TReDS?

TReDS is not only a factoring platform, but it also plays as a digital medium to conduct business loans in a much healthier manner than traditional loans. Let’s observe the various aspects why.

Time

Time of payment for any corporate is of 30-45 days. But, an MSME cannot wait for such a time to keep on running the business and completing the extended goals too. So, TReDS helps the business get a factored amount of the payment in 2 days of approval, so that the money is always there in times when needed.

Pressure

The pressure on a business keeps on building especially when the client is on a retainer work basis. While the payment for the work done in the current month is scheduled to be done in the next 30-45 days, the work for the next month needs to be initiated now. This leaves the MSME in a hard position of finding adequate funds to do the job further.

With TReDS, this pressure of not being able to either do the job or compensate against other expenses goes away reducing the overall pressure on the business.

Collateral & ROI

While going for a business loan, any business suffers two major backlogs – rate of interest and paperwork. While being in a position of struggle, an MSME would not want to waste working hours doing the paperwork that the lenders require. 

TReDS being a digital platform, takes away most of the paperwork hassle. Also, the rate of interest is much lesser as compared to traditional loans against banks and NBFCs. The only collateral you require is one-time authentication and then the invoice every time you want to conduct the discounting.

If you are looking for a business loan for your organization, it is advisable to switch to a TReDS platform to instead apply for invoice discounting at much lower interest rate and hassle of paperwork. M1xchange is one such platform which is highly preferred by both MSMEs and Corporates. You can take a look at their portfolio at M1xchange.