Issue: September 2024

Empowering Business Growth and Financial Expertise

Welcome to the September 2024 edition of Profinance Consultancy’s monthly newsletter! In

this issue, we aim to empower business owners and financial leaders by providing insights
on importance of financial management and explore financing options including SCF.

Market Overview: Economic and Business Climate

The Indian economy continues to show resilience amid global uncertainties. For MSMEs,
opportunities abound, with government initiatives fostering growth and financial inclusion.
However, challenges like increasing competition, technological changes, and tighter
financial regulations need strategic solutions. In this newsletter, we’ll discuss about the
importance of managing financials and liquidity for SMEs, different options available to
SMEs for financing, an overview of Supply Chain Financing.

Stay tuned for valuable tips on:

- Why Financial Management and Working Capital Management is important for SMEs
- Accessing SMEs-specific financing options.
- an overview of Supply Chain Financing (SCF)
 Financial and Working Capital Management is important for SMEs

Financial management is crucial for SMEs for cash flow management, cost control,
financial planning, risk management, access to financing, strategic decision making,
sustainability, and growth.

Effective financial management helps SMEs monitor and control costs, identify areas of
inefficiency, and implement cost-saving measures. It also helps in managing financial
resources efficiently, investing wisely, and planning for future growth. It enables better
control over resources, supports strategic planning, and helps navigate financial
challenges.

The role of a finance manager is essential in the journey of an SME to becoming a large
corporation.

A knowledgeable and experienced finance manager deeply reviews the financial reports,
grasps the business's model, backs the founders' goals, fixes the financial issues,
develops the strategy, and organizes the funds.

Grasping the business's operating cycle is crucial for grasping its need for working
capital. This is why we review the company's historical financial statements to observe
the trend in its operating cycle. If the operating cycle's trend is towards longer days, the
company might encounter a liquidity problem. Typically, the overall working capital cycle
is longer than the operating cycle, which is because cash flow is generated slowly.

A shorter operating cycle leads to quicker cash flow and reduces liquidity problems. The
growth that comes with increased liquidity is preferable over growth that relies on
borrowed funds, which is always expensive.
Many businesses fall into the liquidity trap when they wrongly anticipate higher growth,
borrow more than necessary, and then fall into a longer working capital cycle due to
sluggish demand.

Various factors, including demand, material costs, and the timeliness of payments,
significantly influence the ability to meet growth expectations.
 MSME Financing: How to Access Crucial Funding

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s economy.
However, securing financing remains a challenge for many.

There are several debt financing options available depending on your needs and
circumstances:

1. Bank Loans: Traditional loans from banks or NBFCs are a common form of debt financing.
They offer the most competitive interest rates and terms.

2. Lines of Credit: These are flexible arrangements where a lender provides access to a certain
amount of funds, which can be borrowed as and when needed. Interest is only paid on the
amount borrowed.

3. Off balance sheet funding: While they typically have higher interest rates, credit can be
used for short-term financing to vendors.

4. Peer-to-Peer Lending: Platforms connect borrowers directly with individual investors

willing to lend money. Terms and interest rates can vary based on creditworthiness.

5. Factoring and Invoice Financing: These options involve selling accounts receivable or
invoices to a third party at a discount, providing immediate cash flow.

6. Equipment Financing: Specifically for purchasing equipment, this option allows you to
borrow funds with the equipment itself serving as collateral.

7. Convertible Debt: This type of debt can be converted into equity under certain conditions,
providing flexibility for both the borrower and lender.

8. CGTMSE Loans: These loans are backed by the government and offer favorable terms for
small businesses.

9. Merchant Cash Advances: These provide a lump sum in exchange for a percentage of
future credit card or POS sales, making them suitable for businesses with consistent card or
POS transactions.

Each option has its own advantages and considerations, so it's essential to evaluate which
aligns best with your financial goals and situation.
 Supply Chain Financing - An option to improve liquidity
Supply chain financing in India is a rapidly evolving sector, reflecting broader trends in global
finance while also addressing unique local challenges and opportunities. Here are some key
aspects of the market:

-The supply chain financing (SCF) market has seen significant growth over the past decade,
driven by increasing trade volumes, the need for working capital, and technological
advancements.
- Major banks, such as State Bank of India, HDFC Bank and ICICI Bank, are actively involved in
SCF, offering various products like factoring, reverse factoring, and invoice discounting.
- Fintech startups are increasingly playing a crucial role by providing innovative SCF
solutions. Companies like KredX and Capital Float are examples of players offering platforms
for invoice financing and working capital solutions.

Types of Supply Chain Financing

Reverse Factoring: This involves a buyer facilitating early payment to suppliers through a
financial institution, which can help suppliers get quicker access to funds at favorable rates.

Factoring: Suppliers sell their receivables to a factor (a financial institution) at a discount to

receive immediate payment.

Inventory Financing: Financing based on inventory as collateral, allowing businesses to access

funds by pledging their stock.

Dynamic Discounting: A strategy where buyers offer early payment to suppliers in exchange
for discounts, optimizing cash flow for both parties.

Future Trends
- The use of blockchain, AI, and machine learning is expected to enhance transparency,
efficiency, and security in SCF transactions.
- As SMEs are crucial to India’s economy, there will likely be more tailored SCF solutions to
meet their specific needs.
- Continued government support and policy changes aimed at easing credit access for
businesses will further drive market growth.

The SCF market in India is poised for continued expansion, driven by both traditional
financial institutions and innovative fintech solutions, supported by favorable government
policies and increasing demand from businesses across various sectors.
About us

ProFinance Consultancy is a Delhi-based financial research and advisory firm. Following are
our core service areas:

1. Financial and cashflow management

2. Building medium and long-term financial strategies to avoid liquidity issues and
bankruptcy
3. Banking facilitation services
4. Financial and process guidance on pre IPO
5. Advisory on corporate restructuring, balance sheet management, business valuation
and asset/business acquisition
6. Building credit profile and credit rating improvements.

We focus on solving major funding issues such as cash flow mismatch, insufficient access to
affordable capital, weak financial metrics, low creditworthiness, and poor risk
management. Our assistance enables our clients to develop financial discipline and make
better financial decisions, improving their financial statements and banking track record,
which builds trust with lenders, lowers borrowing costs, enhances creditworthiness, and
decreases the likelihood of default or insolvency.

About Bharat Garg

Bharat is a CA, CPA, IRP and ex Corporate Banker. He helps SMEs and mid corporates in
financial management, fundraising, solving complex financials issues, streamlining processes,
building and coaching teams, and preparing for IPOs. He has an exposure of successfully
closing 600+ funding deals in the last 2 decades.

He has a deep network at mid and senior levels in Public and Pvt Sector Banks. He is
practically well versed in doing proposals of project finance, asset finance, working capital,
bank guarantees, hybrid financing, supply chain finance, structured debt, non-conventional
debt, merger and acquisition financing, etc. He also assists lenders in handholding,
monitoring, and reviving their distressed borrowers.
Looking for finance? Reach out to ProFinance
Our team will help you arranging the following financing options for your business.
1. Affordable working capital with minimal collateral
2. Long-term project financing
3. Extended bank guarantees
4. Machinery loans
5. General capital expenditure loans
6. Lease rental discounting
7. Business expansion financing
8. Supply chain finance and bill discounting

We operate on a success fee basis, with no upfront charges. Services available for borrowers
in Delhi and the NCR region.

Contact Us
For more information on any of the topics covered in this newsletter or to explore how
Profinance Consultancy can help your business, please contact us:

Email: [email protected]
Phone: +91-9871696835
Website: www.cabharatgarg.in

Address: A 98, LGF, New Friends Colony, Delhi - 110025