Suresh Tanwar owns a flourishing logistics, packaging, and transport business. He handles nearly all aspects of his company, from sales, marketing, operations, and customer service, to finances. Sooner or later, finance, especially the lack of working capital, tends to become a challenge. Suresh needs to invest in his growing business, like any other Small and Medium Enterprise (SME).
This scenario, common among India’s SMEs, calls for smart management of available monetary resources, ensuring that company has the required business capital to keep operations running . After all, the survival of a business is directly dependent on its ability to seize the next growth opportunity. Businesses also inevitably face situations of sudden, unforeseen expenses. If these working capital needs are not duly addressed, business operations can be affected and profit margins can drop.
Here are 7 tips for business owners like Suresh Tanwar to increase their working capital.
1. Try working capital financing
Procurement of a working capital loan through conventional banks is largely prohibitive, for several reasons. Often, small business owners have no collateral to offer against the loan being sought. This is a major reason why traditional financiers tend to reject loan applications from SMEs. Inflexible lending policies, laborious paperwork, and extremely slow disbursement times by banks also act as deterrents.
Faced with the recurring business costs, and the inability to acquire business capital via traditional bank loans and overdrafts, SMEs are quite likely to find themselves in a tight corner.
Working capital financing offers a constructive way out. An increasing number of SMEs are now opting to meet their working capital needs through lenders other than banks and traditional lending institutions. Capital Float is a digital finance company that funds small businesses. We have assisted manufacturers, B2B service providers, buyers, distributors, travel agents, and many other businesses with easy access to timely credit.
A range of custom financial products offered by Capital Float can help solve the problem of increasing working capital. Flexible, fast, friendly, and affordable, these loan offerings ensure borrowers have access to the requisite amount of business capital, right when they need it.
The B2B e-commerce segment is seeing exponential growth in India. A report suggests that the growing presence of B2B e-commerce platforms has offered SMEs access to competitive pricing and has also reduced inventory costs by 40%. This serves to ease the business’ working capital needs considerably.
SMEs have also benefitted greatly from being connected digitally with buyers and sellers through e-procurement. Elimination of middlemen and their related costs means that they earn more revenue. Besides, a digital platform offers SMEs an added advantage of being able to negotiate with a wider base of suppliers. Finally, the process of e-procurement curtails spending.
3.Proactively manage inventory
SMEs need to replenish their inventory constantly. Earlier, there was a need to hold vast amounts of stock, putting pressure on working capital. Miscommunication within departments would also lead to stockpiling and increased costs.
However, rigorous stock checks coupled with e-procurement can bring down such needless expenditure. This greatly eases the burden on working capital. Active management of inventory eliminates the need for advance buying and helps you move towards just-in-time delivery of goods. Efficient inventory management thus holds the key to increasing business capital.
4.Keep track of collections
Businesses often face issues of delayed payments from customers. A smart business manager needs to get past excuses for delayed payments. Creating accurate and timely invoices goes a long way in avoiding deferred returns. Such receivables billing also helps avoid bad debts and cash crunches. Rigorous follow-ups on billing and collections will have a positive effect on the working capital as well.
5.Keeping suppliers happy
Timely payment to suppliers helps develop better working relationships, and works wonders for the business. Besides, it enables SMEs to negotiate better deals. Not being able to pay vendors on time results in a strained working relationship, which could cause delays in deliveries and poor quality of services. Naturally, this can wreak havoc on a business as delays and operational inefficiencies eat into working capital.
Keeping suppliers happy is likely to have added benefits for SMEs in the form of discounts that largely serve to ease the need for working capital. Courtesy early payment, bulk supply and/or regular orders become easier, ensuring that business capital isn’t affected, adding that much more to the liquidity of funds.
6.Keep expenses transparent
It is no mean task to run a business smoothly, especially when it comes to managing finances and having to put aside working capital to seize the next big opportunity. Even smaller hidden expenses can have a cumulative negative impact on an enterprise’s cash flow. Making expenses more visible therefore is an intelligent way of managing finances. This includes setting clear rules in areas such as travel and accommodation, deploying necessary tools to monitor expense claims, and so on.
Running into financial troubles is a given for any enterprise, big or small. How well a cash crunch is handled depends on how much cash a business has in its kitty for unexpected expenses. A financing firm like Capital Float enables enterprises across industries with quick and easy access to funds, to tide over times like these.
A trustworthy partner will walk that extra mile with people like Suresh Tanwar, and help them fulfill their entrepreneurial dreams. Capital Float has been serving SMEs for over 3 years, providing affordable loans, anytime, anywhere, in a manner that is customized to an SME’s business needs.
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The Goods and Services Tax or GST is ready for a rollout on July 1, 2017. Various rules, procedures and action items have already been outlined for the transition to the new, unified system of indirect taxation. Businesses and taxpayers alike are expected to embrace these changes and get ready for the new normal—the era of standardized taxation. GST is expected to impact businesses significantly, especially those with cross-location presence, with operations across states. Both large and established goods and service providers, as well as SMEs, will be significantly impacted, both in terms of financial and operational sustainability.
What is GST?
GST will enable standardization of the indirect taxation under four slabs—5%, 12%, 18% and 28%. The change in tax rules will have a direct impact on cash flows and working capital loans for businesses. From the line of credit to taxation levels and timelines, businesses will have to reassess and realign themselves. On the one hand, local and Central taxes such as VAT, Service Tax, Excise Tax and others will be subsumed; on the other hand, tax slabs may increase; for example, from 15% under Service Charge to 18% under the third GST slab. As a result, immediate available working capital finance levels will change.
GST and working capital
Working capital is a key factor in the health of a business. Businesses should focus on periodically assessing their working capital needs. The impending GST rollout makes this even more imperative. This is because the tax bucket your business falls under will change depending on various factors such as the nature of business, locational spread and more. Not just this, the rules and timelines for availing a line of credit will also be revamped under the new GST regime. This means that cash flow will be impacted, and you may need to look for new sources of working capital finance. After all, sustaining day-to-day business operations is essential to growing your business, especially if you are an SME with low financial reserves. Working capital is, in a way, a reflection of the financial health of your company.
Here are some of the key changes GST is expected to usher in:
- Input tax credits will open up: According to the current tax system, input tax credit is available only on inputs that are related to taxable output. For expenses that are not related to taxable sales, input credit cannot be availed. However, under GST, a feature called the “Furtherance of Business” has been introduced. Under this, credit is allowed for any kind of business input, irrespective of whether it is directly used for “taxable sales”. This is a positive development and increases the scope for business to avail an additional line of credit. As a result, the immediate cash requirements will reduce, and working capital flow will get better. Businesses must closely study the GST clauses to understand how to benefit from input credit across newly added areas.
- Timeline of tax payment: Under the new GST rules, the tax is levied when the stock is transferred. As a result, businesses will not be able to claim tax credits till the time of sale, which may result in a huge time lag. Working capital levels might experience a drop during this time. Evaluating working capital finance specialists such as Capital Float is recommended, to ensure that business operations remain unaffected.
- Moving goods will be easier: Under the current tax regime, a lot of time and effort is spent by companies who have multiple presence across states (warehouses, offices, factories etc.)—they need to adhere to multiple laws such as octroi, CST and so on while moving goods across state borders. This complexity adds to the cost of doing business across states. With GST, this movement of goods across the country will be simplified and more cost-friendly.
- Imports will be costlier: If your company is in the business of procuring raw materials from outside, you may experience escalated costs soon. The current import duty rate of 14% will be replaced by a standard GST rate of 18%, making imports expensive.
- Reprimands for suppliers’ non-compliance: The input tax credit levels will depend on whether your suppliers comply with taxation and financial norms. This will make it imperative for your suppliers to declare their outward supplies along with their tax payment. You will also be held accountable if your supplier fails to furnish valid returns. This is an unfavourable practice for your business since in the event of their non-compliance, your input credit tax claims can be reversed and you may have to pay interest. It is, therefore, important that you assess your vendor base from a compliance perspective to avoid impacting your working capital
These are some of the direct ways GST will impact the working capital of your business. Should you need to augment your working capital to ensure a healthy cash flow under GST, you can turn to new age fintech lenders like Capital Float who are creating innovative and customised financial products. Our term finance offering, for example, is tailored to ease your working capital crunch with features such as zero collateral requirements, 3-day loan disbursal and customized credit criteria. Click here for more GST Blogs.
Oct 24, 2018
Intimidated by the long-drawn process of getting a loan approved from conventional sources such as banks and traditional NBFCs, schools in India often discard the idea of borrowing funds for improvements on their campus. They try to make the most of their limited available funds, even if it means some degree of compromise on the quality of upgrades they had planned for the school.
Such an approach does not bring any benefits in the long term. In some cases, it may even backfire. For instance, if a school purchases low-quality furniture due to inadequate funds, which causes discomfort to students/staff using it for 6-7 hours every day, it may not only tarnish the school’s reputation but also cause serious health problems for the users.
What comes as a relief is that school loans are available on easy terms from FinTech companies that are essentially NBFCs but have a streamlined digital lending model for quick disbursal of funds. From a loan for buying school furniture to any other loan for school development, they can provide funds within a week of application receipt. The application needs to be substantiated by only the soft copies of a few documents verifying the credibility of the school.
So what are the benefits of leveraging a quick school loan from such a source? Does it lead to more profitability for the educational institution?
Here’s how the benefits of these loans unfold:
Enable improvements in infrastructure and purchase of new teaching equipment
FinTechs can provide a loan for school construction which helps the borrowing institution to divide students of the same class into different sections. With this, teachers can give more attention to each student, and the quality of teaching improves. The building structure can also be expanded when a school decides to admit more students or has to advance its existing classes to higher grades.
Schools can also take a loan for smart class facilities that are sought in every private school today and have become significant for a generation growing in the digital age. Other areas where a school loan can be used include furbishing of labs and computer rooms, purchase of games supplies and investment in vehicles for transportation services.
Invigorate interest in admissions
The most direct impact of bringing improvements in school facilities is a rise in the number of students who want to be a part of the institution. While senior students can understand the benefits of moving to an optimally planned school on their own, the parents of younger children who join an academy from kindergarten will also try to place their children in such a school. Provision of excellent facilities and keeping pace with new techniques that transform the learning environment is a natural incentive for more admissions in a school.
The good repute of a school can instantly attract students who move to the city due to their parents’ job transfers and have to find an educational institution in minimum time to avoid loss of studies in an ongoing academic session.
Collection of more fees
More admissions imply higher fee collection, and constant increase in this amount eventually leads to increased profitability for schools. A school loan taken to add new facilities and create better learning experiences has multiple benefits for schools that aim to be the leaders in delivering quality education services. Evidently, the increase in their earnings also helps them to repay the borrowed fund.
Whether you need a small loan for school furniture or up to Rs. 50 lakh to finance any development process in your school, Capital Float ensures that you get it most conveniently. Visit https://www.capitalfloat.com/school-finance to apply for your fund today.
Oct 24, 2018
India is amongst the fastest growing economies of the world, with retail trade contributing an estimated $600 billion+ to the economy. The impact which GST, the unified indirect tax structure introduced by the Government of India on July 1 2017, brings on such a major economic lever will be highly significant.
Further, the implications of this new taxation procedure on the trader will vary on the nature of the trade, i.e., wholesale or retail. In this blog, we explain the opportunities within the new tax reform that traders can leverage, and discuss how they can prepare themselves from a GST perspective. Read on to know the effects of this latest indirect tax reform for:
1. For Wholesalers:
The wholesale market is fundamental to extending the reach of goods and services to the interiors of the country, especially the rural markets. Most wholesalers operate in cash transactions because of which there is a good chance that some transactions are not accounted for, which was previously a concern but ceases to be one under GST.
Given below are the main advantages that GST brings to wholesalers.
- Transparent tax management: The introduction of technology into the taxation system can be a blessing in disguise, an opportunity to bring about transparency in tax management. Rather than relying on cash transactions, wholesalers will now get an opportunity to go digital. They will also be able to avail the facility of input tax credit. Input tax credit is where the businessman will be able to claim tax on all input goods and/or services. For example, if a wholesaler is renting a tempo for transport of goods, going ahead they will be able to claim the tax paid on the rental and receive it as input credit. They will thus be able to reduce the final market price of the transported goods by making up for that amount.
- Financial streamlining: Because the entire supply value chain including tax flows will be on GST records, wholesalers will be better connected to retailers and suppliers. For example, the payment for a consignment will reflect in the accounting records of the supplier company as well as the wholesaler, leaving no ambiguity about payables and receivables. This will make it easier to process payments and get tax returns in a timely manner, thereby improving the cash flows of traders. A reliable positive cash flow will help build confidence in the new regime, by making working capital available and aiding opportunities to grow the business.
- Reorganization of supply chain: GST will enable high visibility and streamlining of the supply chain, providing wholesalers with a transparent view of supply movements. For example, taxation at the “place of supply” is already mobilizing FMCG companies establish fewer warehouses, the sizes of which will be larger than before. This will aid business efficiency in the long run. However, in the initial transition phase, many wholesalers may undergo de-stocking since they would have already paid VAT on their current stocks, and would like to avail of the input tax credit on the basis of the GST rules.
- Ease of borrowing through digital lending: Because financial and tax transactions will now be recorded in the GST system, even small traders will have digital records of their company finances and credit status. These digital records will act as a ready reckoner of information when a trader opts for a loan. Financial institutions and online lenders like Capital Float can now easily assess the loan eligibility of small traders such as Kirana owners by accessing this data, and provide them quick and easy loans. Borrowing funds online and doing business will now be easier.
2. For Retailers:
Almost 92% of the retail sector in India is unorganised, operating in cash payments. They are, essentially, the tangible representation of FMCG multinationals to end-consumers; yet they are challenged by chronic issues such as the lack of technology enablement and low operating margins. A majority of the retail market consists of “kirana stores”, which are often the smallest link of the trade chain.
Here are the benefits of the new taxation system for retailers.
- Input tax credit facility: As mentioned for wholesalers, retailers too would be able to claim taxes paid for input products and services availed. This will present a cost advantage to retailers. For example, under the previous tax regime, if a retailer purchases a refrigerator to store perishable goods, they were not able to claim credit for tax paid on it. Under GST, they will be able to claim the tax paid on the new refrigerator when they file their taxes. This will be possible due to tax connections reflecting in the GST value chain at each stage of the transaction. Availing input tax credit means financial gain.
- Ease of entry into the market: The market is expected to become more business-friendly due to the clarity of processes related to procurement of raw materials and better supply logistics. This is a good opportunity for new suppliers, distributors and vendors to enter the market. The registration process has also become very clear under the GST, aiding entry into the market.
- Retailer empowerment through information availability: Small retailers often do not have complete visibility into their stock receipts, payments, etc. and are forced to blindly rely on the word of the supplier. GST will streamline these supply and cost challenges and empower the retailer with readily available information through digital systems. For example, when different types of bills like invoices, credit and debit notes, etc. are stored digitally as proposed by GST using accounting software, these will provide retailers with real-time reports on sales, stock information and live balance sheets, in addition to performing error checks before placing an entry into ledgers.
- Better borrowing opportunity: The retailer scope for business growth can be increased by increasing the retailers’ access to finance. This is where Fintech lenders like Capital Float step in – they can ease their passage to the new tax regime. Capital Float recognises the financial challenges these small business players face and strives to bridge this gap by financing them with small ticket loans. As “kiranas” move onto GSTN, Capital Float will be able to better serve this micro-entrepreneur segment, helping them overcome upcoming challenges by leveraging the GST-enabled digital footprint.
However, like any new reform, there are certain challenges that need to be addressed. We see that both retailers and wholesalers must manage the following eventualities of GST implementation.
! Higher costs of input services: Input services such as manpower, legal, professional services, auditor services, travel expenses, etc. will now be taxed at 18% as against the earlier bracket of 15%, leading to higher costs to the wholesaler.
! Additional costs to upgrade technology: Many wholesalers, especially rural ones, are not technology-savvy and will need to rely on help from their supplier companies to undergo a technological transformation. This means that supplier companies may need to increase commissions for wholesalers— an added cost to the company, or wholesalers and retailers themselves will need to invest in new systems, incurring additional expenses.
3. For Importers and Exporters
According to the financial reports of 2016, India is the 16th largest export economy in the world with the net value of exports contributing to one-third of the GDP. The subsuming of various local state level taxes will have a direct impact on imports and exports, a critical component of trade. For example, the Countervailing Duty (CVD- an additional import duty levied to offset the effect of concessions or subsidies, currently 0% or 6% or 12%) and Special Additional Duty (SAD- a special kind of customs duty paid on imported goods currently at 4%) have been done away with under the new GST regime. However, Basic Customs Duty continues to be applicable and importers will need to pay it as per previous rates.
Here is a look at the overall impact of GST on trade:
- Imports Taxation: Every import will be treated as an interstate supply, and will be subject to Integrated Goods and Services Tax (IGST) along with Basic Customs Duty (ranging between 5% and 40% depending on the good imported). This implies that IGST will be levied on any imported item, based on the value of the imported goods and any customs duty chargeable on the goods (say 10%). IGST is a combination of SGST (say 9%) and CGST (say 9%). For instance, for an import item worth Rs 10,000:
|Total Duties + Taxes Payable||Basic Customs Duty (10%)||GST (18%)||GST Cess(if applicable)|
Thus, imports taxation is an added tax liability for retailers who import goods or services.
- Exports Taxation: Exports will be treated as zero-rated supply, i.e., no GST will be charged on exports. This is in line with the “Make in India” campaign that aims to make India a global manufacturing hub, for which exports are important.
- Import of Services: The new clause of import of services places the onus of tax payments on the service receiver when the services are provided by a person residing outside India. This mechanism is called reverse charge and will apply in certain scenarios. For example, if the assessee has no physical presence in the taxable area, then the representative of the assesse will be required to pay tax. In the absence of representation, the assesse has to appoint a representative who will be liable to pay GST. Another example is when a registered dealer is buying goods or services from an unregistered dealer. In this case, the registered dealer will have to pay the tax on supply.
- Need for restructuring working capital: A major shift is that GST is based on “transaction value” rather than MRP. In the old system, CVD was charged as a percentage of the MRP. Under GST, IGST will be charged as a percentage of the transaction value. This will affect the cash reserves of retailers and wholesalers, and they will need to reassess their working capital needs.
On the whole, GST is expected to bring domestic players at par with large multinational corporations due to the renewed import and export norms and the rules for FMCG suppliers. This is a good sign for Indian trade and exports in general, and thus the implementation of GST shows promise to propel India onto the international trade arena.Visit our GST blog to know more about GST and keep track of latest.
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Oct 24, 2018