7 Ways to Manage Your Business Cash Flows

Two of the main reasons why businesses face challenges are inadequate cash reserves and business finance. Whether the business is struggling or growing, effective cash flow management is absolutely essential and the key to business survival.

There is always a lag between the time a company pays its suppliers and employees and the time it collects payments from customers, which causes issues for the business to remain operational. Once businesses have used a lot of their finances, they may experience a cash crunch that prevents them from paying suppliers, buying materials and even paying salaries, which hinders business growth and success, since most companies usually lose the trust of suppliers and employees in such situations.

SMEs Need Smart Cash Flow Management

Cashflow is basically the movement of funds in and out of your business. Cashflow is called positive when the amount of cash entering into the business from sales, accounts receivables, etc., is more than the amount of the cash leaving your business through monthly expenses, accounts payable, employee salaries, etc. In the reverse situation, the cashflow would be considered negative.

To attain a smart cash-flow management, businesses need to think beyond just their profit or loss and focus on a positive cash flow, which is key for generating profits. Companies need to have enough cash reserves available all the time to pay their employees and suppliers so that production isn’t affected.  Capital Float is a FinTech lending company fulfilling the business loan requirements of SMEs in India. We offer flexible, short-term loans that you can use to purchase inventory, service new orders or optimize cash cycles. Our online application procedure simplifies the application process and lowers the time required for approval. The loan amount is disbursed within 72 hours.

As mentioned previously in this blog, achieving positive cash flows is fundamentally important to the health of the business. Here are some ways in which you can effectively manage your cash flows, leading to higher profits and business growth.

7 Practical Ways to Ensure Effective Cash Flow Management

1.Collect Receivables: There are times when every business has to extend credit to customers, particularly when they are in the growing stage. When you speed up the receipt and processing of receivables, you will experience quick input of cash, further reducing credit cycles that inevitable lead to debt.

2.Opt for Short-Term Unsecured Loans:  Short-term business loans, from FinTech lenders like Capital Float, are the best solution to overcome cash flow problems and meet immediate cash requirements. Unlike traditional lending institutions, which require extensive documentation to process a loan, these lenders use technology to make financing decisions. Applicants can avail a loan amount from Rs. 1 lakh to Rs. 3 crores. If you decide to pay off the remaining balance of the loan earlier than decided, you won’t not be charged any prepayment penalty either.

3.Adopt Easy Modes of Payment: Try to get paid faster by using mobile payment solutions. Many companies, upon selling their products, provide services through which they receive payment on delivery via banking apps on smartphones or tablets with the use of a credit or debit card. In fact, businesses today are actively turning towards card payment devices, where these Point-of-Sale machines, other than offering cashless transactions, become the instruments for availing working capital finance through services like Capital’s Float Merchant Cash Advance.

4.Pay Later Finance: This financial product helps you make regular payments to replenish inventory and keep your business moving. Many a time, businessmen are presented with growth opportunities, but due to a cash crunch, they are unable to capitalize on such opportunities. Even when they try to, the informal lenders charge exorbitant rates of interest, coupled with other unreasonable demands, making it hard to borrow money from them. Pay Later is a predefined credit facility, unique to each applicant, from which the applicant can make multiple drawdowns. The facility can be restored following repayments, making the facility ready for further use. Interest is charged on the drawdowns and not the entire facility.

5.Online Seller Finance: Capital Float has partnered with the largest e-commerce platforms in the country, including Amazon, PayTM, Snapdeal, Myntra, Shopclues, eBay, etc., to help business owners access fast and flexible working capital loans for business operations in India. One of the unique features is that the loan is offered on the basis of the borrower’s monthly sales and projected revenue We use cutting-edge tech-integration, Big Data and decision sciences to assess the borrower’s business.

6.Discounts on Early Payments: Your profit margin might be effected when you offer your customers discounts upon early payment. However, it will surely help in your business’ cash flow management. Incentivizing customers will encourage them to make payments earlier than the billing cycle, which will be advantageous for your business.

7.Increase the Company’s Sales: This is indeed the most traditional method of increasing cash flow, but it might not always work. Try to attract new customers and sell additional goods or services to your existing customers. You should remember that while new customer acquisition increases sales, selling more to existing customers is cheaper and leads you to increase your profit margin, generating more cash.

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Revised GST Rates – with effect from 25 January 2018

The 25th GST Council was held on 18 January 2018, and the rates of 29 goods and 53 services were reduced to lower tax slabs. These revised rates came into effect on 25 January. Other highlights of the panel included the decision to divide between the Centre and State, collections worth ₹35,000 crores from the Integrated Goods and Services Tax. The proposal to bring petroleum and diesel products under the ambit of GST is likely to be considered in the next meeting.

Here are the key goods and services that have been lowered or raised into new GST slabs.  

Good/Service Present GST Rates Revised GST Rates
Diamonds & precious stones 3% 0.25%
Articles of straw, esparto or other plaiting materials, Velvet fabric 12% 5%
LPG supplied to household domestic consumers, Raw materials and consumables needed for launch vehicles, satellites and payloads, Tamarind kernel powder, Mehendi paste in cones, Tailoring services, Transportation of petroleum crude and petroleum products, job-work services for manufacture of leather goods and footwear 18% 5%
Sugar boiled confectionery, Drinking water packed in 20 litre bottles, Biodiesel, Drip irrigation system including laterals & sprinklers, Mechanical sprayer, Fertilizer grade Phosphoric acid, Bamboo wood building joinery, Transportation of petroleum crude and petroleum products with ITC credit, Metro and monorail projects, Common effluent treatment plants services for treatment of effluents, Mining or exploration services of petroleum crude and natural gas and for drilling services in respect of the said goods 18% 12%
Old and used motor vehicles(other than medium & large cars and SUVs) with a condition than no ITC is availed 28% 12%
Old and used motor vehicles [medium and large cars and SUVs] with a condition that No ITC is availed, Public transport buses that run on biofuel, Services by way of admission to theme parks, water parks, joy rides, merry-go-rounds, go-karting and ballet 28% 18%
Small housekeeping service providers, notified under section 9 (5) of GST Act, who provide housekeeping service through ECO,  without availing ITC nil 5%
Actionable claim in the form of chance to win in betting and gambling including horse racing nil 28%
Rice bran(other than de-oiled rice bran) 0% 5%
Cigarette filter rods 12% 18%

Oct 24, 2018

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With a dream to revolutionize business lending in India, Capital Float provides loans to small businesses – YourStory

Written by Pardeep Goyal

The Indian business environment is exciting especially now, where every bright idea is turning into a business, big or small. There are over 30 million SMEs in India. Small businesses are run by passionate entrepreneurs, but unlike digital startups, venture capital money is not accessible to them. Despite efforts, some of these businesses are losing out on growth or shut shop due to lack of working capital.

With a dream to revolutionise business lending in India, Gaurav Hinduja and Shashank Rishyasringa are changing the business of money lending with Capital Float.

Initially, Shashank was an engagement manager at McKinsey & Company, where he advised several leading financial institutions, investment funds, governments and foundations on business strategy, governance, operations and risk management. Co-founder Gaurav was running operations at India’s big apparel manufacturer Gokaldas Exports with over 40,000 people and USD 250 million in revenues.

The duo were at Stanford together before they co-founded Capital Float. They considered various business ideas but doing something related to capital was a natural inclination for them. So they decided to take on the money lending problem for small businesses.

How Capital Float works?

According to Gaurav, Capital Float works in three basic steps:

  1. Customer has to apply online,
  2. Submit documents,
  3. He/she gets a loan if eligible in about three days.

Yes, just three days for loan!

He adds, “We make sure to go through as many data points as available, including external data sources to determine credit worthiness. Once we have established that, we have been able to disburse a loan in under three days and in a lot of cases where the loan is small, it happens instantaneously. In the future, we hope to reduce that time for disbursal even further.”

Team Capital Float understands the importance of friendly capital, and is quick to deliver that much-needed finance to promising businesses that approach them. It is rare in India that a small business can get a loan in such a short time from any traditional finance company. Gaurav says, “Besides the swiftness and hassle-free nature of our service, one of the key USP is that we do not charge a prepayment penalty and our products have dynamic tenures that suit our customer’s needs.”

Key Challenges and Motivation

Starting up always comes with its set of challenges. At Capital Float, they went through the motions like everyone else: from the initial days of hiring the right team to defining clear goals, to ensuring compliance.

For startups, challenges are part of the larger scheme of things to survive and grow. Capital Float is an RBI-certified NBFC but registration was not an easy task. “At one point, we almost quit and took a break for a couple of months. But we understood regulation is very important in a complex market like India and we got back on track and persisted with our goals”, says Gaurav.

Gaurav shares how the company started conversations with their customers in the early days: “Most traditional loan providers find reasons to say ‘no’ to an entrepreneur looking for capital, but we look for a reason to say yes.”

The company has come a long way now; it is serving in major cities like Delhi, Mumbai, Bengaluru and Chennai and has testimonials from CFO of Zovi and other big brands.

According to Gaurav, today’s SMEs will drive tomorrow’s billion dreams. “But we need to ask ourselves who the driving and supporting force behind such SMEs are today,” he adds. The dream to revolutionise business lending in the country has kept Gaurav and Shashank going. “The fact that we get close to a hundred applications a day vindicates our belief in what we set out to do: create a capital revolution in India,” says Gaurav.

Being an entrepreneur himself in the fin-tech domain, Gaurav believes that entrepreneurs form the backbone of the Indian economy as the creators of the largest number of jobs and biggest contributors to the GDP. A significant hurdle for most of them is timely access to appropriate finance.

He shares some advice for entrepreneurs working in the financial domain and other budding startups:

  • Compliance is key; never ignore it
  • You should choose investors who share your vision
  • Don’t give up easily; starting up can initially wear you out but it should not bring you down
  • Don’t always hire for skills. Sometimes it’s important to hire for values
  • Don’t make promises to the customer that you cannot deliver on
  • Don’t launch your product in too many markets at once. Have a soft launch first, test it, tweak it and then re-launch the revised product

Gaurav adds, “There are many banks and NBFCs which provide loans to businesses, but you need to become a partner to your customer, not a lender. Use technology and big data to improve your customer’s experience. Understand how different customers use your products in different markets so that you can customise your product to meet their needs.”

Piece sourced from YourStory. You can read the full piece here.

Oct 24, 2018

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Budget 2017: Giving SMEs a stronger footing

SMEs play a crucial role in the economic development of India. They contribute to 45% of the industrial output, 40% of the exports and 42% of the employment in the country. Although these enterprises are highly significant to the economy, they are regularly challenged by policies, laws and processes In recognition of this, the Union Budget 2017 gave start-ups and SMEs a lot to cheer about.

Increasing Financial Viability with a Lower Tax Burden

Finance Minister Arun Jaitley announced a reduction in corporate tax from 30% to 25% for SMEs with an annual turnover of less than ₹50 crores. Moreover, the presumptive tax rate for SMEs with an annual turnover of up to ₹2 crores has been lowered from 8% to 6%. Both these measures would increase the bottom-line of SMEs. These enterprises work on low profits, and their survival is often threatened by even minor fluctuations in the business. The enhanced financial viability would increase the survival rate of SMEs.

At the same time, Budget 2017 has tried to align with the broader objective of increased digitalization. The proposed reduction in presumptive tax is applicable only for a firm’s gross receipts that are received via digital transactions. Also, no cash transaction above ₹3 lakhs would be permitted going forward. Both these measures have been designed to increase transparency and widen the tax base through digitalization.

Much Needed Breaks

Start-ups need maximum support during their initial years. From the next fiscal year, start-ups would have to pay taxes for only three out of seven years, up from last year’s exemption limit of five years, if they recorded profits. This is a great opportunity for start-ups and the economy. While a huge percentage of start-ups fail, these enterprises are responsible for introducing the most innovative products and services. The tax break announced by the Finance Minister would give start-ups a better fighting chance of survival and encourage more innovative ideas to be executed well.

Loans, Financing & Funding

The Finance Minister doubled the lending target to ₹2.44 lakh crores for the next fiscal year, making more credit available to small businesses to finance their working capital needs. Prime Minister Narendra Modi had already announced, on December 31, an increase in government credit guarantees for SMEs from ₹1 crore to ₹2 crores.

The FIPB (Foreign Investment Promotion Board) is to be abolished in the upcoming fiscal year. This would significantly liberalize policy related to FDI (Foreign Direct Investment). This is expected to boost retail and ecommerce in the country. Mr. Jaitley mentioned that further FDI relaxations were under consideration.

Most traditional banks are unwilling to give loans to SMEs due to the fear of defaults. Tax concession on provisions for non-performing assets (NPAs) and capital infusion of ₹10,000 crores for state-owned lenders would make loans more accessible to SMEs.

To encourage more investments into start-ups, the condition of continuous holding of 51% voting rights has been relaxed for carrying forward of losses by start-ups, provided the founder remains invested in the business.

Building on Digital India

While saying the almost 125 lakh people had adopted the BHIM digital payment app, the Finance Minister announced two new schemes – cashback for merchants and referral bonus for individuals.

Aadhaar Pay, the merchant version of the Aadhaar Enabled Payment System (AEPS), is to be launched shortly. This app would enable consumers to make payments without using cards, e-wallets or even mobile phones, since the merchant’s device would be linked to an Aadhaar biometric reader. More than a billion people in India already have Aadhaar cards, and this system would make most financial transactions simple, fast and traceable. It would be a boon for raising loans, enabling fintech lenders to link repayment to payments received by the SME.

The government would be targeting ₹2500 crore digital transactions in FY18 through BHIM, Aadhaar Pay, IMPS and debit cards. The Finance Minister indicated that banks would have to introduce 10 lakh new point-of-sale (PoS) terminals by March and 20 lakh Aadhaar-based PoS terminals by September, allowing more digital transactions, which would enhance financial inclusion and transparency.

Infrastructure

For the upcoming fiscal year, the Finance Minister announced a step-up in the total allocation for infrastructure development to an all-time high of ₹3.96 lakh crores, including increased allocations for railways, road and shipping. Infrastructural development eases a huge bottleneck faced by SMEs in transporting their goods to other regions in a timely and cost-effective manner. Better infrastructure would give confidence to SMEs to expand their markets farther and reduce wastage and spoilage during transportation.

Moreover, the roll out of GST (Goods and Services Tax), which the Finance Minister indicated was tracking as planned, would further increase the ease of doing business in other states.

An allocation of ₹10,000 crores towards the Bharat Net project was announced. This would increase access to high-speed broadband across India, facilitating communication and allowing SMEs to reach out to clients located in various corners of the country in a cost-efficient way. The geographic scale achieved will help SMEs to break physical boundaries and leverage bigger opportunities for growth.

The latest Union Budget comes as a respite for start-ups and SMEs. The strengthening of these businesses would play a critical role in India’s transition to becoming an economic superpower.

Oct 24, 2018