How Technology is Helping SMEs in Raw Material Procurement?

Technology helps MSMEs boost their online visibility and consumer interaction. As a result, technology is a vital role in the growth of small enterprises. It enhances manufacturing processes, adds value, and lowers operating costs.

What is Working Capital?

Working capital refers to the funds accessible to satisfy your immediate, short-term requirements. To ensure that your working capital is working for you, you should evaluate your present levels, predict your future needs, and think about solutions to ensure you always have adequate cash. Working capital (sometimes known as net working capital) is the money your firm needs daily. Essentially, it is the remaining cash after accounting for money coming in and going out over a set time.

What is Debt Capital?

Borrowing is one way for a firm to get funds. This is debt capital, which is received from either private or public sources. For well-established businesses, this usually entails borrowing from banks and other financial institutions or issuing bonds. Friends and relatives, internet lenders, credit card firms, and federal loan programs may be sources of cash for small enterprises starting on a shoestring.

Role of Technology in SME Industries

Technology must play a significant role in efficiently leveraging the potential of SMEs and startups. Adopting current technology, such as cloud computing, automation, and digitization, will increase productivity and assure economic development while maximizing available resources.

• Account receivables and payables should be automated

Streamlining your account receivable process helps you manage your working capital properly and saves you money and time. Businesses benefit from increased liquidity by automating their accounts receivable. They may also easily track their real-time inflows. Automation accelerates the collection process by reducing the debtor's collection term through regular payments and automated reminders. Account payable automation is essential for working capital management since it scans invoices electronically and eliminates invoice mistakes.

It gives managers more visibility and transparency, which helps them make better decisions. Automation ensures that invoice payments are made on schedule, resulting in a stronger liquidity position.

• Lower operating expenses

Technology is an investment, not an expense. Technology may help businesses dramatically cut their operational and marketing costs. Looking just at digital marketing provides a greater reach than traditional marketing channels at a fraction of the expense. There are several estimates on how much a firm may save by switching to the cloud. The figures may fluctuate, but they are undeniably essential and make a considerable impact after the fiscal year.

This is essential for startups and SMEs because their investments are restricted compared to corporates.

• Invoice Automation

Select automated invoicing by linking with your existing ERP, which also helps firms be paid quicker, contributing to an increase in inflows. E-invoicing improves the visibility of payables and receivables while increasing speed and dependability. Furthermore, electronic invoices are simple to reconcile, resulting in more precise working capital management.

• Reaching more customers

The success of different internet startups and SMEs in India demonstrates how businesses may generate new chances by engaging with markets at the micro and macro levels, allowing for the possibility of reaching big and niche audiences via technology. This was previously too expensive for small businesses. Companies may now encourage new relationships and integrate online and physical encounters thanks to technological advancements.

Furthermore, due to the rise of various online payment systems, online marketplaces have formed, allowing other firms to reach previously untapped markets and audiences. Technology, when used properly, is the best option for startups and SMEs to develop tremendously while optimizing their limited resources. Ensure that the staff is up skilled to manage the advances; otherwise, startups and SMEs will find themselves in the same scenario as giant IT organizations today: a vast workforce lacking the necessary skillsets.

• Inventory control

Automation in inventory management allows a company to assess better slow-moving or fast-moving inventories, which aids in stock refilling. As with inventory maintenance, funds are spent and give less liquidity until the inventory is sold and turned into cash. Unnecessary inventory hoarding is also undesirable for a company and results in inventory storage expenses. To experience greater liquidity, the inventory turnover ratio should be lower.

• Transformation to Digital

Businesses may benefit from digital transformation, including inventory management, receivables collection, and payables management, automated invoicing, and linked banking. Businesses may readily anticipate their intended sales, the number of raw materials to be acquired, and the amount of networking capital necessary with technology. They can also receive real-time information on their expenditures and slow-moving inventories. They may use this to examine wasteful spending and strategize cost-cutting and cost-cutting approaches.

Integration with linked banking enables firms to reduce operational cycles while avoiding interest and processing charges. Businesses were more aware of their fixed and variable costs and attempted to reduce them. With this automation and technology, they now enjoy a positive cash flow and improve working capital management efficiency.

• Reduced operating cycle

The operational cycle is the time between purchasing raw materials and receiving cash from customers. The stronger the liquidity, the shorter the operating cycle. The number of days represents the operational cycle. The operating cycle is also known as the "Cash Conversion Cycle." Digitization enhances the operating cycle by enhancing inventory management, shortening the cash conversion period, and automating payables. A shorter operating cycle allows for better working capital management.

It is computed as follows:

Operational cycle = inventory holding time + receivables collection period - supplier credit period