The positive turn due to the sudden onset of the COVID-19 pandemic was the trigger to push for the adoption of new technologies. Businesses and MSMEs began to modernize and embrace new technologies as this became important during an unprecedented crisis – the world in lockdown mode and demands for supply chain finance increasing at worldwide.
Supply chain finance volumes have increased dramatically over the past 18 months. Traditionally, supply chain finance (SCF) has been a rather slow and cumbersome process. This has always been the document – heavy, slow manual systems that include intensive Know Your Customer (KYC) checks, which are often not achievable for time-sensitive, low-staffing MSMEs. These drawbacks and inefficient systems make SCF a less attractive and less profitable option for lenders.
The MSME sector is right next to agriculture in terms of job creation. The MSME sector also accounts for 48 percent of India’s exports. With strong and complex backward and forward linkages, the sector provides essential support to large companies and their value chain.
The new wave of digitization seeks to solve this problem by making the service more efficient and transparent, as integrated systems simplify information sharing and KYC. The lockdown of COVID-19 in various states has made it difficult to obtain and transfer physical documents and it is then that the role of technology has become even more important.
Digitization offers a more efficient and less resource-intensive solution that makes banking and SCF services more profitable in the future. Electronic invoicing or electronic invoicing has become a viable solution for businesses and MSMEs.
What is electronic invoicing?
Electronic invoicing mainly involves suppliers communicating the invoice details to the notified portal and obtaining a reference number. Apart from this, it is important to see that a uniform standard for the invoice has been developed and notified as “INV-01”. This contains all the elements of a typical commercial invoice for the supply of any kind of goods or services.
The standard is based on Universal Business Language (UBL), with some customizations to meet Indian business practices. This paves the way for “machine-readability of invoices and essential interoperability” between companies, ie by allowing direct transmission of invoices digitally from one accounting / ERP system to another.
The paperless paradigm of electronic invoicing has improved overall business efficiency in the following ways:
● elimination of data entry errors
● reduction of reconciliation problems
● reduction of disputes between the parties to the transaction
● faster payment cycles
● substantial reduction of paper
● reduction of treatment costs
● better internal controls
Ultimately, these networks may support the exchange of not only invoices, but also other documents such as purchase orders and even payments. Thus, electronic invoicing will revolutionize the way businesses send and receive invoices from each other.
The country’s banks and FIs are gradually shifting from traditional asset / rating based lending to cash flow based lending. This is a very beneficial trend for MSMEs.
A major factor affecting the ability of MSMEs to convert trade receivables into cash is “slow paying” invoices. Under the AA, electronic invoicing will allow invoicing data to be shared with banks and FIs in real time. The digitally signed invoice from the government portal can serve as the sole source of truth for the document raised by the supplier. It is also possible to report an invoice that has already been financed to prevent the supplier from resubmitting the same invoice to another funder.
Benefits of electronic invoicing
Electronic invoicing or e-invoicing, which started in October 2020, is about to end its third quarter with success. It has several advantages:
Tax compliance would become part of the business process
GST returns will be pre-filled
The electronic invoice will be generated automatically and can be used wherever needed
Mitigate the risk of fraud
Electronic invoicing has much more to offer the business ecosystem in the future. Electronic invoicing is an important part of the supply chain finance process with significant benefits for SMEs and their suppliers. The digitization of invoices considerably reduces the cost of generating invoices as well as their processing time.
Electronic invoicing results in increased productivity and automation as data is sent directly from the buyer to the SME’s accounting system. Thus, eliminating the need for manual data entry. In addition, a fast and efficient payment method can help SMEs maintain a friendly relationship with their suppliers.
Another benefit of using electronic invoices is the simplification of account reconciliation. Many jurisdictions around the world have introduced regulations relating to electronic invoices.
Thus, electronic invoicing will make the process of “debt financing” reliable, faster and based on data. The turnaround time for loan grants, especially for MSMEs, will be significantly reduced. Export invoices are also covered by electronic invoicing. Since export invoices and shipping invoices have many data fields in common, auto-populating a large portion of the shipping invoice from electronic invoices is another potential use case. electronic invoicing.
(Arun Poojari is co-founder, Cashinvoice.in – a digital invoice marketplace)
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Posted: Wednesday October 06, 2021 11:38 IST