The Indian SME and MSME industry is considered as the backbone of the nation’s manufacturing prowess. It accounts for 95% of the nation’s manufacturing capacity; over 42 million small and medium scale enterprises employ 40% of India’s workforce, almost 106 million individuals.
In recent year, there has been a spur of industries and entrepreneurs across the nation thanks to the availability of funds and several assistance programs funded by the Government of India.
Unfortunately, a substantial number of these industries fail to gain a significant foothold in today’s market. It often results in premature insolvency and bankruptcy of these organisations.
Poor understanding of various aspects of today’s industry has been identified as the primary reason for such incidents. A significant number of entrepreneurs hail from backgrounds that offer no formal training for business management.
They often fail to understand critical aspects of a business such as supply chain, channel finance, invoice finance, etc. leading to major loss during the incubation period of a business.
Understanding of important business terms for entrepreneurs
There are several essential terms associated with an organisation and others that are related to the common terms referring to options for financing a small business.
Let’s take a look at some of them and understand what do these represent –
Supply chain and SCM –
Supply chain refers to a system that helps move resources as well as manpower to produce finished products from raw materials and deliver the same to the end-user.
It is a series of steps businesses take that include acquiring resources from their suppliers to delivering goods to their customers.
It involves a number of individuals, processes, and steps that work accordingly with each other, ensuring maximum output while maintaining the minimum overhead cost of production. Proper understanding of the supply chain, its management, and its financing is one of the most crucial aspects of running an organisation that every entrepreneur should know about.
Channel finance –
It specifies a system via which businesses acquire short-term financial support to boost their working capital.
Channel financing is useful as it offers a stable monetary backing to pay for essential operational costs, as well as the expenses of stockpiling goods and other necessities like the hiring of skilled labour, etc.
Unlike conventional business loans, channel financing work as a need-based financing option, primarily catering to manufacturing, pharmaceutical, engineering, and agricultural sectors.
There are several financial institutions that offer such modes of financing; borrowers can avail such credits from both government-backed and private players, including NBFCs like Bajaj Finserv.
Companies like Bajaj Finserv offer Business Loans with affordable interest rates, flexible repayment options, and several other borrower-friendly features and benefits to help with repayment.
Invoice finance –
Invoice financing is another form of short-term financing option that offers monetary support to organisations as per their unpaid invoices. It is an ideal option to fulfill any short-term liquidity needs of a company.
For invoice finance, financial institutions offer funds based on their liquidity needs and depending on the outstanding bills. Organisations can avail this small business finance to pay suppliers and employees, ensuring uninterrupted operation of that business.
Invoice financing allows companies to overcome the waiting period for accounts receivable, ensuring they meet the market demand by maintaining their production capacity. It is quickly becoming one of the most preferred methods of financing in India.
Understanding the key terms associated with a business will help entrepreneurs maintain the quality of production while staying ahead of debt. It will help organisations across the nation deter insolvency and ensure entrepreneurs become a successful small business owner.