SMEs embracing digital transformation: A necessity, not an option

The MSME (Micro, Small, and Medium Enterprises) ecosystem is seeking a revitalized push, with a strong emphasis on innovation and digitalization. It is crucial to reassess their processes and embrace new tools and systems, moving away from traditional on-premises deployments and manual documentation. 

The reasons for coping with the industry dynamics are ample and clear. The MSME is a significant sector in the Indian economy as it contributes close to 33% of India’s GDP. Over 40 percent of 1the country’s workforce is engaged in the sector, becoming a primary driver of employment opportunities in urban and rural India in recent times. MSMEs (Micro, Small, and Medium Enterprises) contribute to over 40% of the country’s exports. According to Government of India data, 1.75 crores MSMEs (Micro, Small, and Medium Enterprises) are registered in the Udyam Registration as of July 2023. 

The government as well as the regulator have initiated several schemes and programs to help this sector grow. Government e-Marketplace, Aatmanirbhar Bharat Economic Package, Emergency Credit Line Guarantee Scheme, Digital MSME Scheme, and Credit Linked Capital Subsidy Scheme are some enablers helping the MSME ecosystem take a steep step ahead. 

The key challenges

Despite several initiatives in place, the MSME sector often faces significant challenges in vital business requirements. The sector is more susceptible to negative impacts on its cash flow, collections, access to credit, supply chain, labour supply, and market demand for goods and services than more prominent firms. Delayed invoicing, manual payment collections and processing, and inefficient cashflow tracking often lead to cashflow gaps, impacting day-to-day operations, and causing inconsistent payments and growth opportunities for businesses.   

New perspectives

Most of today’s MSMEs believe that digital tools and technologies are crucial for their success which reflects the growing recognition of the transformative power of digital technologies in the sector. Hence, during a rapidly evolving technological landscape, the MSMEs are inclined towards embracing digital transformation to stay in the market, fuel their growth and competitiveness, and grab new opportunities.  

Collection of invoices, digitally

With the offerings in the supply chain network, companies like Vayana could impact the digital collection processes and significantly improve the overall collections performance of its clients. B2B businesses in the MSME segment have witnessed an almost 30% reduction in outstanding receivables and at least a 40% improvement in collection times when they stayed flexible with diverse modes of payment with the use of the most used digital payment collection features of today like payment links and QR codes.   

Easy credit, to empower trade ventures 

As per a recent estimate, there is an astounding credit gap of $530 billion (about $1,600 per person in the US) in the MSME sector globally. Out of over 64 million MSMEs in the country, only 14% have access to credit, as per a thought paper on MSME lending by one of the investment banking companies.  

However, with the recent technological boom and automation, the chance of availing credit is getting smoother and streamlined. Businesses now can check the status of invoice collections, payment trends, reconciled reports, and cash flow in real time. Access to loans from any financial institution is no longer a headache as unpaid invoices are tracked accurately through fintech automation solutions which serve as their collateral to apply for loans. So, businesses do not have assets to pledge anymore. 

Anurag Rastogi
Head of Product and Technology
Hylobiz –
A Vayana Group Company.

Efficiency is the key

The MSMEs, especially the manufacturing sector, can immensely benefit from collective automation by encouraging sustainability among the players. This in turn can make the MSMEs buoyant enough to manage challenges around their supply chains. This sector is trying to adopt methods to decrease its carbon footprint and emissions and increase its dependency on clean energy.  

The growing concern around climate change has catapulted the importance of ESG practices to the forefront. The sector is sentimental to invest more in sustainable practices that safeguard businesses from future risks. Thus, a digital turnaround can help companies in ESG practices with efficient management of data and other processes.  

The government of India has taken several initiatives to support and promote the MSMEs in the country. So, it is high time that every business goes digital for smoother functioning and growth through streamlined access to cash flow and credit.  

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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