Effective management of cash determines success in business. Given the unpredictable nature of trade in the textile industry, there will be instances when working capital or money gets stuck in the business, jeopardizing profitability and growth plans.
Stakeholders of the natural fibres supply chain like weavers, fabric manufacturers, and retailers operate their businesses on stringent budgets. Whenever a gap arises between the point at which a sale happens and the time payment is received from the debtor, it negatively impacts their business. As there is limited scope and time to approach banks to raise loans, there is nil cash flow. So, how can this problem be tackled?
ReshaMudra Invoice Financing
ReshaMudra Invoice financing bridges the gap between the time a sale occurs and the time at which the debtor receives the payment in the natural fibres supply chain. It enables weavers, fabric manufacturers, and retailers to pay their associates and suppliers on time. It enables them to pay their associates and suppliers based on unpaid invoices. Let us understand the working capital cycles of stakeholders of the natural fibres supply chain before we delve into the benefits associated with invoice financing.
Working capital cycle of weavers, fabric manufacturers & retailers
They have a 60-day working capital cycle. This sector is classified as a cottage industry, credit is scarce and limited to a select few. Although weavers can get up to 30 days of credit from reelers, they are forced to pay faster in order to access quality yarn. The majority of the fabric crafted by weavers is purchased by corporate or fabric houses with a credit period of 45 – 60 days.
They sell their finished fabrics for cash. Extended payment terms are available on a case-by-case basis. These payment terms are only valid for 45 days. However, the cycle of fabric conversion to garments and credit to customers exceeds 90 days, affecting the fabric manufacturers’ credit cycle. Credit availability in this segment is moderate.
They are at the tail end of the supply chain, serving end users. Inventory is the most expensive cost for a retailer. Given the variety of materials to be maintained and inventory replenishment cycles, an average retailer with a single-store operation will have an inventory holding period of 90 days, while a multi-store operation will have an inventory holding period of 120 days. This, combined with a supplier’s credit availability of 60 days, results in a 60-day working capital gap.
Benefits associated with ReshaMudra Invoice Financing
- Ease of paying suppliers, and associates when capital is stuck
- Cash discount to increase profitability
- Up to 60 days credit period
- Easy repayment with daily interest rate calculation
- Off-balance sheet financing
Upfront cash payment
ReshaMudra invoice financing provides an upfront cash payment to suppliers of weavers, fabric manufacturers, and retailers. This resolves the problem of working capital and also helps the stakeholders negotiate a cash discount of up to 5 to 6% as per market standards. This manifests as an excellent opportunity for the stakeholders to increase their bottom-line post netting of interest payments
Extended working capital
ReshaMudra invoice financing also helps weavers, fabric manufacturers, and retailers by facilitating payment to their suppliers at the end of the credit period offering an extended credit time of up to 60 days. This fulfills their working capital needs without hampering any day-to-day financial requirements giving additional financial assistance for stakeholders to boost their sales and revenues.
ReshaMudra with its unique credit offerings is resolving financial hurdles for the stakeholders of the natural fibres supply chain and empowering them to successfully grow their businesses.