Comparison of Short- Term Financing Options; Factoring As the Best Alternative

Abstract

Studying the relationship between factoring and other short-term financing with reference to India's micro, small, and small businesses The basis for comparison is average interest rate, general repayment period, execution time, commission charge, application of agreement between or among the parties, requirement of securities, whether it creates assets or liabilities, the intended use of the available funds or credit, whether GST Report and CIBIL Score are required for obtaining funds/credit or not, and any restrictions on drawing the funds or credit. With the use of a tabular comparison, the benefits of factoring funds over other forms of short-term borrowing.

Introduction: Steep rivalry in the corporate sector is a result of changes in the business environment. At the same time that well-established large business hubs are experiencing intense rivalry, MSME commercial firms are also coming under pressure. Along with other big/large business operations around the world, MSME is one of the most crucial components for economic development in any developed, developing, or under-developed country in the world. However, as a result of fierce competition between giant corporations and a disregard for the significance of MSME businesses, MSMEs are struggling and are unable to expand in this constricting business environment. There are a few ways that MSME may serve in order to broaden or enhance the MSME world.

A MSME can succeed in this cutthroat business environment by using the financial tools offered by various financial institutions, such as short-term financing. To better execute short-term financing, MSME businesses may find some of the short-term finance and its comparisons valuable. The conclusion drawn from the short-term finance data may be useful to MSME decision-making.

Objectives: The purpose of the title is to evaluate the many forms of credit that are now available and show how, after comparison, short-term financing might benefit MSME. All forms of short-term financing for MSME will be compared to factoring as a new source of alternative credit on the market. A comparison table will be created, and the results of the comparison will be explained, in order to show the significance of factoring as the best alternative source of financing for MSME.

Methods: The data which has been collected from different resources like of websites RBI, ICICI, SBI, IFCI, etc. Its foundation is research in terms its quality. This article will analyze the nature, characteristics, definitions, numbers, and facts of each type of short-term credit, including factoring, trade credit, cash credit, working capital loans, and cash credit. There will be comparison of each type of factoring with listed short-term financing options available to MSME's. Since this is an empirical study analysis will be of qualitative in nature and there will not be any need of the measures of central tendency like ratio, percentage etc.

Results: In comparison to alternative forms of short-term financing for MSME, employing factoring funds has a significant advantage, according to reviews of numerous websites and articles. The major benefit over other short-term funds is that factoring offers actual cash in hand under the guise of factoring funds. After selling their own accounts receivable to a factor and generating revenue, an MSME may be able to abolish the term "bad debts" in the future because factoring involves collecting money from debtors on their behalf. In comparison to other forms of short-term financing, the factoring process is more convenient, requires less paperwork, and provides funds faster. Factoring works in the concept of account receivables for MSME where as other short-term finance is works on the concept of account payable for MSME.

Conclusions: In conclusion, factoring stands out as a superior short-term financing option for MSMEs due to its ability to provide immediate cash flow through the sale of accounts receivable. Unlike traditional financing methods that rely on accounts payable, factoring minimizes the risk of bad debts by ensuring that funds are collected directly from debtors. Its streamlined process, reduced paperwork, and faster access to funds make it a more convenient and efficient solution compared to other alternatives.