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Accelerating India’s Financial Supply Chain: The Role of Invoice Data in Payments and Lending

India’s financial supply chain is undergoing a digital revolution, driven by advancements in invoice data utilization, payment automation, and cash-flow-based lending. With initiatives such as e-invoicing, GST integration, and digital lending platforms, financial transactions are becoming more transparent and efficient. However, challenges remain, especially in closing the MSME credit gap and fostering financial literacy among small businesses.

The Growing Importance of Invoice Data

Invoice data plays a crucial role in streamlining financial processes, particularly in accounts receivable (AR) and accounts payable (AP). A recent survey carried out by Partner HUB Ltd and Electronic Payments and Systems Ltd. among financial professionals in India revealed that 65% of respondents already leverage invoice data, while another 30% plan to adopt it soon. This is crucial as invoice data enhances credit risk assessments, automates payment processing, and provides deeper insights into cash flow management.

Digital Maturity and Adoption

The surveyed financial institutions exhibit a high level of digital maturity. About 85% of surveyed organizations rated their digital lending capabilities at 5 or above on a 10-point scale, and 50% scored 8 or higher. This readiness enables businesses to integrate invoice data with banking systems, GST records, and digital payment platforms for smoother financial operations.

Challenges in Cash-Flow-Based Lending

Despite progress, cash-flow-based lending for micro, small, and medium enterprises (MSMEs) still faces hurdles:

Limited Resources: Many lenders lack the infrastructure to process digital data effectively.
Lack of Digital Transactions: A significant portion of MSMEs still operates in a cash economy.
Financial Literacy Barriers: Many MSMEs struggle to navigate financial products and digital tools.

However, financial institutions recognize invoice data’s potential to mitigate these challenges by improving credit underwriting and loan accessibility.

Government Initiatives and Market Drivers

Key government policies have accelerated financial digitalization in India:

GST Implementation (2017): Simplified tax processes and enabled access to tax returns data.
Mandatory e-Invoicing: Boosted compliance and transparency for businesses earning above ₹50 million annually.
Trade Receivables Discounting System (TReDS): Enabled MSMEs to access financing by discounting their receivables.
Account Aggregator Framework: Facilitated secure data sharing among financial institutions, improving credit risk assessments.
Digital India Campaign: Strengthened digital adoption across industries, enabling MSMEs to transition into the formal economy.

Bridging the MSME Credit Gap with Data-Driven Lending

Despite these initiatives, MSMEs still face a credit gap exceeding USD 500 billion. Only 14% of MSMEs have access to formal credit. Invoice data presents a promising solution by serving as a reliable alternative to traditional credit underwriting. By analyzing invoice details—including payment history, buyer-supplier relationships, and GST compliance—lenders can offer loans based on real-time cash flows rather than collateral-based models.

Key Uses of Invoice Data in Lending

Credit Risk Assessment: 90% of survey participants use invoice data to evaluate borrower credibility.
Fraud Detection: Unique Invoice Reference Numbers (IRN) help prevent forged invoices and double financing.
Predictive Analytics: Advanced data analysis allows lenders to forecast potential defaults and market trends.
Embedded Finance: Seamless integration of invoice finance within digital platforms enables MSMEs to access funding instantly when issuing invoices.

Invoice Data’s Role in Payment Automation

With increased access to digital invoice data, service providers can automate payments and collections, reducing costs and improving efficiency. Automated reconciliation of invoices and payments saves time and minimizes errors, benefiting both enterprises and their accountants.

Survey Insights on Payment Automation

More than 50% of survey respondents already use invoice data to automate payments.
58% of respondents provide value-added services such as real-time payments and automated reminders.
Future trends include greater integration with banking systems and increased adoption of API-based payment solutions.

Future Outlook: The Path Forward

The future of India’s financial supply chain is deeply tied to the evolution of invoice data integration. Key advancements to watch include:

Greater API Integration: Linking invoice data with banks, payment gateways, and ERP systems.
Expansion of Account Aggregator Framework: Streamlining data accessibility for improved credit assessments.
Enhanced Risk Monitoring: Using invoice data to provide early warnings for potential financial distress.
Increased MSME Participation: Encouraging digital adoption to bridge the credit gap.

While digital maturity is growing, challenges such as financial literacy, data accessibility, and integration costs must be addressed. By continuing to enhance digital frameworks and leveraging invoice data effectively, India can strengthen its financial supply chain, empowering MSMEs and driving economic growth.

About the Research

The insights presented in this article are based on a survey conducted by Partner Hub Ltd. and Electronic Payments and Services Pvt Ltd., featuring responses from financial institutions, fintech firms, and banks on their use of invoice data in payments and lending based in India.

Download the white paper here to access detailed survey results.