Turning hands-on shopping into a profitable shopping model for SMEs

Financing of small and medium-sized businesses

From a practical purchase to a profitable buying model

In India’s economic structure, small and medium-sized enterprises (SMEs) have a significant role to play. The 6,000-product assortment sector accounts for about 8% of India’s GDP and accounts for 45% of industrial production and 40% of exports from the country. This seemingly small but dynamic and dynamic sector has the potential to accelerate industrial growth and is indeed an intermediary and leading partner in India’s inclusive growth process. But somewhere in the future, these businesses face challenges that not only hold back their growth, but even clip their wings on the path to success. India has failed to stimulate the development of small and medium-sized businesses through financial assistance. Why? One of the reasons, in our opinion, is that only 6% of these enterprises are registered with the Registrar of Companies, and 94% are classified as unregistered enterprises.

Executing various processes such as bulk purchasing, working capital turnover, financial management, customer satisfaction, compliance activities, purchase processing, etc., turns out to be cumbersome for SMEs when all activities have to be done together. Usually these are businesses with little investment. Good cash flow and significant working capital can motivate an entrepreneur to keep their firm afloat.

So how does an entrepreneur ensure that his money is well-circulated?

Working with discounts

Getting the most out of every penny invested helps you maximize your return. Lenders are most happy when there are cash transactions on the table and will do their best to ensure that the transaction is closed as soon as possible. Here, that extra mile means offering attractive discounts, offers such as prepayment and 10% discount are common. In other lending scenarios, retailers are strongly encouraged to shorten the loan term by offering a discount period. Here the lender offers several options, and the sooner you pay off your debt, the more discount you can take advantage of. Consider:

Pay immediately and get 5% discount when paying in cash

OR

Pay within 10 days and get a 2% discount

If a trader wishes to purchase goods worth 100,000 rupees, the following options are available:

Discount advance payment when paying in cash: discount 100,000-5% = 95,000 rupees / –

If paid after 15 days = 100,000 rupees / –

If a loan is provided = 100,000 – 2% = 98,000 rupees / –

Annual savings from discounted cash advance payments = 5,000 per month * 12 = Rs 60,000 / –

Volumetric game

Another powerful tool for keeping production costs as low as possible is the bulk of inventory and goods used in manufacturing. If your business is stable and you plan ahead prudently, considering product prices, seasonal requirements, and ensuring that the product is always available to meet demand, then a long-term contract with suppliers would be appropriate.

A retailer can negotiate a consistent supply of material for a couple of years at a competitive price. Payment terms can include installment options, quarterly or semi-annually, keeping you in control of your cash flow. A well-planned and executed trade can generate excellent profits.

Another way to buy wholesale is through intermediaries or agencies that are associated with many small and medium-sized enterprises. They group their specific requirements for dealing with wholesalers based on volume. This connection and ongoing business leads to fierce competition for wholesalers for their business.

Today, with current access and connectivity to the Internet, a number of platforms have emerged that promote bulk purchasing through a group method. Several businesses that have common needs for materials or goods join together to make a wholesale deal with wholesalers. The result is the elimination of middlemen, better deals for the retailer and higher turnover for the wholesaler.

All of the above scenarios include blocking of working capital. And, as we know, MSMEs face challenges in this area. The only option left is to take out a loan to increase their ability to spend and benefit from it. But again, bank loans charge interest rates up to 10-19% on business loans. This reduces the value of the discount received, even if the average discount reaches 8-10%, as in the scenarios above. The only way to make a deal profitable for MSMEs is to have loans at lower interest rates. This gap in demand has been noticed by some FinTech startups who, through their technology expertise and various allies in the lending industry, have made business loans profitable. From obtaining a loan within a few days to interest rates on loans from 1.5-3% per month, which is about 18% per annum. However, given the low transaction costs and ease of obtaining loans within 48 hours, these fintech companies have proven to be a boon to the MSME world. Obtaining such short-term loans from banks without collateral is burdensome, to put it mildly. Entrepreneurs can now discuss big deals with peace and confidence.

Conclusion

There are many platforms today that initiate bulk purchasing in the wholesale and retail markets. The requirement remains the same, the need for a fair amount of working capital. SMEs continue to face challenges, both financial and otherwise, which lengthen their path to success. In recognition of this, several FinTech startups have ventured into lending to MSMEs. Organizations such as FlexiLoans, which provide working capital loans to these small businesses, boast quick and easy disbursement of loans within 48 hours. It’s great to see a paradigm shift in the way entrepreneurs now approach business ideas with confidence and confidence. With these advances, MSMEs now have a much brighter future and will become leading partners in India’s inclusive growth.

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