How working capital solutions such as invoice discounting help MSMEs become more compliant
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A Clear survey of more than 500 suppliers found that signing up for invoice discounting had a multiplier effect on their compliance. These supplier companies were referenced on the Clear platform.
As part of the investigation, Clear spoke with the promoters and business owners of these businesses to understand the impact of the invoice discount on their GST compliance. In addition, Clear analyzed GST filing statistics for these companies, i.e. how these companies fared in terms of filing GST returns on time; in the 6 months preceding and following their registration for the prepayment service.
Compliance Improvement Survey Results
Clear’s analysis found that deposit and payment behavior improved for these 500+ providers for GSTR-1 and GSTR-3B. GSTR-1 deposition performance improved by 15-20% on average, while GSTR-3B improved by 10-15%. For 50 of these suppliers, compliance with GSTR-1, GSTR-3B improved in the range of 50-100%. This means suppliers are filing and remitting GST faster and with a higher frequency than they were before signing up for a working capital solution. The availability of credit allows them greater flexibility to manage their repayments.
On the other hand, the timely filing of the GSTR by suppliers also benefits the companies that transact with these suppliers. Indeed, improved vendor compliance ensures a smooth flow of ITCs, reduces vendor liaison efforts, and reduces the number of reconciliations for business GST filings, allowing businesses to maximize demand for ITC and manage tax payments with more certainty. Some of the companies are also looking at compliance behavior and leveraging it to incentivize suppliers for more credit facilities.
In particular, a significant percentage of these suppliers (more than 65%) are not covered by the electronic invoicing rules. This implies that compliance has not improved due to auto-filling of GSTR-1 from e-invoicing rather than due to credit from the invoice refresher solution. .
Improved payment cycles
For these supplier companies, the average number of days to receive payment has been reduced considerably, from 15 to 40 days. Note that this analysis was carried out for supplier companies that benefit from credit via invoice discounting on only around 15 to 20% of their receivables. It is easy to see how the improvement in compliance will increase as credit penetration deepens as these suppliers apply for credit on their remaining receivables.
One of the leading MSME providers on Clear Invoice remittances, owner Savia Felt, Milan, revealed: “After using the Clear ID program to receive advance payments, our cash liquidity has improved, which also helps us file GST returns on time and improve our compliance processes with our customers.”
What this means for companies and their suppliers
Given the high correlation, it is imperative for companies to consider comprehensive supplier automation solutions that help them mitigate supply chain inefficiencies in AP automation, compliance and credit/ B2b payments on one platform because solving all these problems together is the only way to truly unlock value in their supply chain digitization journey.
Suppliers, on the other hand, should constantly seek opportunities with their client companies to extend these solutions, as this can contribute significantly to improving their business process while providing liquidity to grow their business.