Why is early payment crucial for recovering small businesses?

Business | Tips & Advice 24 November 2021

Covid pandemic has spared none in the world! The strict curfew laws and lockdown regulations turned everyone's lives around. However, one sector that was badly affected was the MSME sector. It was reported under a recent survey that more than three-fourths of the country's small businesses had an adverse effect after the first lockdown was imposed. In addition, most of the small businessmen, majorly manufacturers, blamed the lack of finances as the reason for the disruption of their supply.

Why is early payment crucial for recovering small businesses?

Funds and supply solely depend on each other to manage the supply chain system efficiently. However, the cruel pandemic has drained all the cash flows from the markets and has troubled both the sellers and buyers. Small businesses would need working capital to recover from the losses, and this can be availed through invoice discounts and supply chain financing. These are similar to small business loans but have lower repayment periods than the latter.

Supply chain finance is a set of tech-based and financing solutions wherein a third-party financer clears the invoices of the seller on behalf of the buyers which helps the seller with enough working capital and also gives time to the buyers to clear their payments. This financing solution has all benefits and no losses for both the parties and thus it is an effective measure to recover from a debt trap.

There are enormous benefits of having an early payment made as of course, you have those extra bucks to spend on your business in a much better way. The importance of early payments can be better understood through the following points:

  1. Helps the brand grow:

    A company that has insufficient funds struggles to keep its position intact in the market. However, with the early payments made, enough working capital can be availed by the small businesses that can further help them to improve their management and look for better opportunities in and around. Let us see how:

    • The funds can be used towards market research to expand the business and make the product better for its potential audiences.
    • The money can be invested in the company’s human resources department so that the best quality of talent is appointed for the company. Also, offering better perks and job securities to the employees will ultimately improve the business on all terms.
    • High-level marketing techniques can take the product to a different level and increase its sales if invested.
    • It can be used for improving the quality of products and services that will also enhance the brand’s goodwill.
  2. Strengthens relationships:

    Similar to a chain reaction, all business entities are interdependent for payments and supplies. However, difficult times often create unprecedented situations wherein you might not be able to pay your suppliers, stakeholders, or lenders on time, ultimately leading to trust issues.

    With enough working capital, you can keep your relationships strong with your suppliers by paying them timely. This may come in handy in the future where if you need a favour, your good impression will get you one!

  3. Help keep your employees loyal:

    Employees are the valuable assets of any small or big company, and what’s better than a loyal workforce? Sharing your profits with your workforce is the best thing you can do to make your employees loyal to your company. Paying them timely, introducing special bonus programs, hosting award ceremonies and seminars will motivate them and make them choose you above all. You can do all of these when you have sufficient funds.

  4. Helps with collateral-free business loans:

    Often, loan providers ask for collateral to provide a secured business loan that smaller business people with lesser assets cannot afford. Supply chain finance offers unsecured business loans to companies at competitive rates. Therefore, any legal business entity can apply for a small business loan easily.

Conclusion

The pandemic hit small businesses are still struggling to recover, but this is easily possible with early payments. Working capital is the crucial element of any company that controls all its day-to-day activities. Supply chain finance offers credit facilities and keeps the supply chain management moving.

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