How Can TReDS help MSMEs beat COVID-19 downturn

With almost all major economies of the world struggling, at standstill, and grappling due to the COVID-19 pandemic, most organizations are reeling for cash. The tremors of disruption have been felt across supply chains, and the retail sales for certain sectors are down to almost zero. Consequently, most firms are cutting down non-critical expenses like research and development, CAPEX, and more. For MSMEs (Medium, Small & Micro Enterprises) already facing a severe cash crunch, this condition is aggravated by the unwillingness of banks to lend to “non-reputed” firms.

No inflow of cash, alongside still, fixed costs going out in the form of employee expenses, rentals, plant, and equipment maintenance has necessitated an aggressive approach towards receivables. This approach is a must for firms to manage healthy working capital as they tide over this crisis.

TReDS could be an effective solution to ease the working capital burden on buyers and sellers in these turbulent times. Traditional trade finance solutions digitized using today’s technological advancements allow large corporates and small businesses to optimize working capital efficiently, and at competitive rates of interest.

Government Stimulus

Governments across the world have stepped in with fiscal and monetary packages, intending to soften the blow for businesses. India too has received a much-awaited and much-discussed INR 20 Lakh Crore stimulus. This could be an opportune time to focus specifically on clients who have been benefitted from such moves, considering they might be in a better position to cough up money now. Further, basis past credit history, the COVID impact, and Government support, one should segregate customers who are unable to pay, from those who are unwilling to pay.

How can TReDS help MSMEs beat the COVID downturn?

Infuse much-needed Liquidity:

TReDS can help MSMEs to maintain liquidity for their businesses functioning in uncertain times. There is an acute financial crunch with COVID-19 due to disruptions in enterprises’ day-to-day functioning and a sudden drop in revenue. In such business environments where liquidity is scarce, TReDS can help shorten the invoice-to-cash cycle for sellers that could be used to manage other urgent business expenses. It is also beneficial for buyers as it can stabilize their supplier base without impacting their cash reserves.

Paperless Onboarding:

Digitization and innovation in TReDS have enabled an efficient and transparent onboarding and transacting process in comparison to conventional physical document-based financing.

With today’s remote working scenario, new-age fintech platforms like M1xchange TReDS facilitate the discounting of invoices for MSMEs digitally. The discounting process is completely digital from the submission of invoices to receiving the payments. There is no physical movement of documents. The integrated platforms have made it easier for all stakeholders to share confidential information, comply with e-KYC processes, and get paid online faster.

Optimized working capital:

Apart from offering liquidity to MSMEs, TReDS can be an excellent medium to optimize working capital for all stakeholders involved.

For buyers, TReDS provides the opportunity to ensure timely payment to suppliers without straining their cash reserves. Additionally, through TReDS, buyers can extend the credit period to benefit from longer payable cycles.

For sellers, TReDS ensures early payment against their receivables, helping them take up and fulfill more orders. Moreover, since TReDS is based on the buyers’ credit-worthiness, it offers financing at lower rates of interest than standalone borrowings leading to cost savings. TReDS provides an additional line of credit that sellers can tap onto when needed most to keep their businesses functioning smoothly.

For Financiers, TReDS helps in fulfilling PSL targets more efficiently in less time for the financial institutions. This gives a boost to the banks who at times struggle to fulfill their PSL asset portfolio. Such banks find TReDS to be a key business opportunity in their bid to reach out to more MSME customers. Financiers also get access to a ready-made client base to connect with more bankable leads.

De-risking the supply chain:

The COVID-19 crisis has brought the fragility of physical and financial supply chains to the forefront. Several organizations are already working towards strengthening the physical supply chain by empaneling more local vendors and contracting with multiple suppliers across geographies to reduce dependency on specific locations or vendors. TReDS can be an excellent medium to strengthen the financial supply chain with e-invoicing and digitize the procure-to-pay process to smoothen workflows, minimize paperwork, and Timely payments, settlement, and reconciliations.

Bottom Line

TReDS has innumerable benefits to ease the financial burden on both the buyers and sellers and navigate the consequences of an economic downturn. During this pandemic, TReDS has proven itself as one of the strongest support systems for solving liquidity issues for vendors and expansion of business for corporates. TReDS is a segment that is rapidly gaining a lot of traction with MSMEs and has enormous growth potential. Reach out to us to know more about how M1xchange can help de-risk and stabilize your business beyond just surviving the crisis to be more resilient in the future.

Also read these – Working capital financing, SME Finance, Invoice Financing, Accounts Receivable Financing, Supply chain financing