Clear forays into SME lending through invoice discounting

Clear, erstwhile ClearTax, on Monday announced its foray into lending for small and medium enterprises (SMEs) with the launch of invoice discounting. The credit option will be available to Clear’s existing over 3,000 enterprise customers to give them access to working capital.

A study by Clear on over 800 enterprises revealed that supplier payments continue to be delayed by 60-120 days, even after the MSME Act, 2006 which mandates MSME payments within 45 days. Invoice processing can take 5-20 days before payment can be released, which aggravates cash flow problems for the suppliers, so many such suppliers are then forced to take credit from unorganized sources at unaffordable rates since the traditional credit models rely on cumbersome application processes and heavy collateral. Invoice discounting helps solve this gap, Clear said in its statement.

“This gap can be solved by tech-enabled invoice discounting, which is a form of credit where suppliers are paid early at a slightly reduced value. This form of credit is still nascent in India (~0.2% of GDP) in comparison to other developing economies, such as China (~11% of GDP). The absence of a common platform for an enterprise, its suppliers and financiers to seamlessly process invoices for credit — is a blocker to run a successful invoice discounting program at scale. Clear’s presence in GST and electronic invoicing is best suited to address this bottleneck.”

The product can help deliver instant working capital and liquidity to suppliers. The artificial intelligence (AI)/machine learning (ML) based platform will connect to ERPs and enable a discount rate selection that is acceptable to both customers and their suppliers and the borrowers can choose from a range of financing options–use their own surplus cash, opt for line of credit via banks or go through the TReDs marketplaces within Clear’s platform–to fund their early payments.

The company said it expects to process $3 billion by the end of financial year 2024 through invoice discounting.

“We have deep experience of building fintech SaaS for enterprises which has led us to solve for the burning need of tech-based solutions for SME credit and B2b payments in the ecosystem. The tech-first supply chain financing products, starting with invoice discounting, will deliver outstanding experience for enterprises and their suppliers,” said Archit Gupta, founder and CEO, Clear.

The fintech company is partnering with banks and non-banking finance companies (NBFCs) to operationalise supply chain credit at scale by enabling quick, efficiently priced credit based on actual business performance and not just asset ownership, Gupta added.