Backed by an accelerated pace of economic reforms and significant breakthroughs in digital transformation—the long-term growth trajectory of businesses in India is clearly positive.

Key enablers such as the Micro, Small, and Medium Enterprises (MSMEs) are poised to underpin the country’s development over the next two decades—unlocking business opportunities across industries and significantly enhancing India’s global competitiveness.

Having said that, small business growth is often hampered owing to delays in payments from big companies and public sector units. Given that MSMEs in India are already battling a $530 Billion credit gap, each day of payment delay results in substantial value erosion.

To put things in perspective—in India, close to $12.84 billion is stuck as delayed payments to MSMEs. Reports also reveal that 25% of bankruptcies are due to unpaid invoices.

Late MSME payments are stifling economic growth

According to a recent report, 49% of companies in Asia conduct business by offering credit to their buyers. These companies are extending longer payment terms to their B2B customers which are now averaging 60 days from the date of invoicing.

The downside?

53% of surveyed companies have reported facing prolonged delays in settling their overdue invoices, with some businesses even reporting an average Days Sales Outstanding (DSO) of 100 days.

While the average DSO globally is approximately 59 days, Indian companies trail behind by 11 days with an estimated DSO of 70 days.

Furthermore, the second most critical factor impeding business growth has been identified as the lack of access to timely and affordable finance.

The central government MSME payment rule for the assessment year 2024-2025 is expected to address the concerns of late payments and safeguard the interest of MSMEs. According to this regulation, purchasers must settle payments for goods obtained from MSMEs within 45 days of receipt and settle all outstanding dues to MSMEs by March 31, 2024.

Any failure to comply with this timeline will render companies ineligible to claim deductions, with the pending MSME payments being treated as income subject to taxation.

As we are just a few days away from the rule coming into effect, there are talks of making amendments to the MSME Development Act.

While the Centre seeks to further strengthen frameworks ensuring timely disbursement of dues to MSMEs, buyers are appealing for a one-year deferment in implementing these provisions, while others are seeking an extension of the stipulated timeframe.

Harnessing the flexibility of Sales Invoice Discounting

Despite the potential benefits of the payment rule on the economic stability of MSMEs, its implications could be disparate among various sectors. This is particularly concerning for industries or businesses lacking substantial bargaining power, given that these MSMEs may encounter difficulties in enforcing timely payments.

As India sets its sights on an ambitious export goal of $450 billion by this fiscal year and aspires to achieve a staggering $1 trillion in goods exports by 2030, the crucial role of MSMEs cannot be overstated. MSMEs, particularly in the export sector, will need easy access to timely and low-cost credit. This will be instrumental in fortifying their resilience and facilitating uninterrupted production and delivery processes.

Among the flexible financing options available for MSMEs is the Sales Invoice Discounting solution. This strategic approach enables businesses to access immediate cash, enhancing liquidity and freeing up essential working capital that might otherwise remain tied up in unpaid invoices. As a result, by opting for sales invoice discounting, MSMEs can navigate operational challenges with greater ease and agility.

Let’s understand this better with an example. Once an MSME has raised the invoice with their client, they can approach a discounting company that will then conduct a thorough assessment of the invoices and submitted documents. Upon approval, the MSME will receive the outstanding invoice amount ahead of the payment due date. The amount can be settled with the discounting company, once the buyer makes the full payment on the due date.

This way, MSMEs can unlock the potential of their receivables and access upfront payment for outstanding invoices.

Experience the ease of flexible financing

Apart from maintaining a consistent cash flow—with improved liquidity and enhanced access to funds, MSMEs can fuel their growth trajectory, invest in critical areas of development, and drive sustainable expansion with solutions like sales invoice discounting.

As per a report, 91% of MSMEs are anticipating their profits to increase in 2024 and 67% are anticipating a surge in consumer demand.

With MSMEs getting ready to take on large orders, sales invoice discounting comes to the forefront as a viable solution to seize new business opportunities, bolster manufacturing and distribution capabilities as well as cover day-to-day expenses.

** The views expressed in this article are solely that of the author and do not necessarily reflect the views of SME Times.

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