Supply chain finance automation can help small businesses address one of their most persistent challenges: maintaining adequate cash flow while waiting for customers to pay invoices. For micro, small, and medium-sized enterprises (MSMEs), delayed payments can restrict working capital and create financial pressure throughout the supply chain.
The challenge is particularly significant in India, where many MSMEs continue to rely on offline processes and have historically had limited access to financial technology. Moving procurement, invoicing, and payments onto digital platforms can improve data visibility, accelerate invoice approvals, and give lenders the information needed to provide businesses with more flexible financing options.
Readers will be familiar with the acronym SME (aka SMB) for small and medium-sized enterprises, which has a few definitions that differ mostly on the upper band of employees and/or revenue size. The definitions don’t include the smallest of businesses, or microbusinesses, which typically are defined as having between 1-10 employees and around $1 million or less in revenues.
So the acronym MSMEs accounts for all of the smaller enterprises in any particular market. This posting in egov discusses the India MSME market and the importance of access to and usage of digital commerce platforms allowing for more flexible supply chain finance.
‘Delayed payments choke MSME suppliers and bring the supply chain to a grinding halt, and adversely affects everyone dependent on them. The concurrent drop of MSME earnings by 20-50 per cent and the decline in India’s Manufacturing PMI Index to 50.6 during the COVID-19 pandemic prove the same. Why are MSME suppliers yet to benefit from supply chain finance automation?…MSMEs in India have an offline legacy and have been historically underserved by technology. Supply chain financing automation in emerging economies, including India, is in stages of infancy. Any technology solution must first prove to MSMEs what is wrong with offline credit platforms and processes before enrolling them into a digital working capital ecosystem.’
In one of our member research reports during 2020, we reviewed the liquidity issue, especially for small businesses, which became (and continues to be) a critical result of the pandemic. Moving commerce onto digital platforms opens up the participants to a whole new world of liquidity options since data visibility promotes the issuance of credit, one lifeline of small businesses.
The article covers some other key points and is worth a few minutes read, for those interested in that region. The points are applicable in any market, but certainly key in developing ones.
‘An easy way for MSMEs to receive timely payments is to use digital commerce platforms. Such platforms connect related but distinct documents of the purchase order (PO), goods received notification (GRN), and the suppliers’ invoice. It speeds up the invoice approval and supplier payment processes….Offline processes create asymmetries of information between enterprise buyers and suppliers….The offline to online swing in the B2C segment of the supply chain has had a powerful impact on the B2B segment of the supply chain. An NPCI report suggests that one-third of India’s households are now using digital payment interfaces for purchase transactions. With digital purchasing gaining critical mass in B2C transactions, enterprises are choosing to procure goods from MSME suppliers through digital processes to make their entire supply chain online.’
The shift from offline processes to digital commerce has significant implications for MSMEs and their access to working capital. Supply chain finance automation can connect purchase orders, goods-received documentation, invoices, and payments, reducing information gaps between buyers, suppliers, and financial institutions.
Greater visibility into transactions can also make it easier for lenders to evaluate businesses and extend credit. This is especially important for smaller enterprises that may have limited financing options but depend heavily on predictable cash flow to maintain operations.
As digital payments and commerce become more widely adopted in India, bringing MSME suppliers into the same digital ecosystem can help create a more efficient end-to-end supply chain. The benefits extend beyond India as well, particularly in developing markets where improving access to digital platforms and financing can strengthen the financial resilience of small businesses.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
