A lot of factors influence the day-to-day operations of an SME business, the most important being the cash flow. As per International Finance Corporation, the overall financing gap in the MSME space is Rs. 2.93 Trillion and that around 97% of MSME’s in India face a working capital crunch. Long credit cycles can adversely affect the cash situation, and an SMB owner must explore financing options to tide over the situation. One such financing solution is the Invoice Discounting Facility.

Invoice Discounting

Put simply, this method of financing is a short-term borrowing that helps in converting the outstanding Invoices that are due, into immediate cash required for running your SME business.

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Exercising the option of Invoice Discount Facility

As a first step, keep all your books in order, and at any point of time know what is the status of your accounts receivables. It is wise to use an App like Moon Invoice, the best Invoice Management, and Payments App, to keep your Financial system in order.
Moon Invoice is a simple, easy to use Invoicing App and Expense Management Software, that helps you generate, manage and track your Invoices and lets you know the status of overdue Invoices. It is not just Top Billing App but is also the Best Time Tracking App.

Reviewing your Invoice Discount Facility

It is important that you review your Invoice Discounting Facility on a regular basis for the following reasons:

Business Growth

Since inception, your business may have grown significantly and may be reporting a higher turnover today. A higher turnover means a lower interest rate. It becomes important to keep reviewing your turnover vs interest rate.

Fees and other charges

Some financiers may charge additional fees such as Legal fees, application fees, etc. which is not justified. There are maybe some other providers who charge a prepayment penalty if repaid early. Shop for the one with the best rates and no hidden fees.

Change in Business

Over time, your business model may have changed. This may impact the process by which you raise and manage your invoices. The terms with which you initially raised Invoice Discounting may not apply anymore.

Changes in your requirements

You may have had a certain set of requirements when you had initially set up the Invoice Discounting service facility. Now that your business has grown or changed, it may lead to a change in your requirements.
Changing Market conditions
New players may enter the market and existing ones may offer new products or features. Look out for the ones whose offerings best suit your needs and shift accordingly.

Other Factors

Look out for the Service providers who do not impose too much control or conditions. It is very important that they do not notify your customers, as it may create a negative opinion in their mind. Also, go for the providers who understand your industry segment well.

To sum up

Invoicing Discounting Service Providers offer a variety of options, with different rates and terms. Be sure to do enough research before choosing the one that best meets your needs. When the business scenario changes, you can review the service providers and make a switch as it might help you save a lot of money in the long run.

 

 

 

Recurring Payments Vs Recurring Invoices

Recurring Payments Recurring Invoices
Recurring payments charge the customer’s credit card account or debit card account on a predetermined schedule for the same amount as preapproved. Send an invoice to your customer on a regular basis. The client receives the invoice but, money is not paid unless the customer approves.
A business that takes prepayment of money and sells a monthly subscription service and product. Subscription services are excellent examples of this. A company that provides fixed services with billable hours is an excellent choice for recurring billing. For example law firms and consulting agencies.

Pros and Cons of Recurring Invoices

Pros Cons
You eliminate the possibility of human error by automating the billing process. If you use a recurring invoice, you will not be concerned about forgetting to charge your customers for the things they ordered.
You must exercise caution while recurring billing to prevent issuing inaccurate pricing. This also holds for price changes that could take place right once an invoice is created.
If you provide your customers with the option for recurring billing, they are more likely to buy products regularly.
It could be difficult to cope with recurring invoices if a transaction fails for any reason.
Net 45 Invoice is due in full within 45 days with no early payment discount offered
2/10 net 45 terms 2% discount if you pay within 10 days; otherwise full payment of the invoice is due in 45 days
1/15 net 45 terms 1% discount if you pay within 15 days; otherwise full payment of the invoice is due in 45 days
1/10 net 45 terms 1% discount if you pay within 10 days; otherwise full payment of the invoice is due in 45 days
1/7 net 45 terms 1% discount if you pay within 7 days; otherwise full payment of the invoice is due in 45 days
Category Net Method vs. Gross Method Explanation
Calculation Approach - Applies tax credits first; reduces taxable income before computing tax liability. - Doesn't apply tax credits; computes taxable income without considering tax credits.
Tax Credit Eligibility - Allows for greater likelihood of tax credit eligibility due to reduced taxable income. - Limits tax credit eligibility because taxable income hasn't been reduced yet.
Itemized Deduction Requirement - Lowers threshold requirement for itemizing deductions due to decreased taxable income. - Raises threshold requirement for itemizing deductions due to higher taxable income.
Advantages - Leads to lower taxable income and increases chances of meeting qualifications for other tax benefits. - Results in higher taxable income compared to net method.
Disadvantages - May miss opportunity to reduce tax burden if taxpayer doesn't itemize deductions or take advantage of tax credits. - Increases taxable income and may result in higher overall tax bill.

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