The Curious Case of Working Capital: The Challenge of Managing Inflows and Outflows

Like most small and medium businesses in India, restaurants operate on a forward supply chain: they provide services up front, with dues getting cleared later.


RUNNING OWN restaurant business, for many individuals, is like a dream come true. At the end of the day, however, regardless of how satisfying the experience of running your own restaurant is, it is a business which requires capital for managing many day-to-day expenses.

Like most small and medium businesses in India, restaurants operate on a forward supply chain: they provide services up front, with dues getting cleared later. This holds particularly true for quick service restaurants (QSRs) and food outlets which have tied up with on-demand food aggregators, or restaurants handling the catering for offices and events. On average, the clearance of dues from the business partners’ end can take anywhere between 30 to 90 days.

But while you wait to receive payments for services rendered, the costs of providing those very same services pile up. You still have to pay the salaries of your kitchen staff, replenish your inventory on a regular basis, and make utility payments. These are immediate working expenses that cannot be deferred. You dip into the money you set aside for expanding your business to tide over this cash crunch, even as you chase after the aggregators/customers to clear their dues.

This is not a good situation to be in, especially in a sector as hyper-competitive as the restaurant industry. The entry barrier in the segment is really low, which leaves the door open to a rapid mushrooming of QSRs and delivery kitchens in the same vicinity. This lack of adequate working capital not only restricts the growth of your business, but also leaves you vulnerable to operational disruption caused by insufficient funds and losing market share to competing outlets.

With wafer-thin profit margins to begin with, any loss of business can deal a major blow to your fledgling enterprise. In this scenario, working capital loans become your only means of ensuring smooth day-to-day operations.

Traditional vs. Digital: Understanding which option to choose for your working capital requirements

Availing such loans from traditional lending institutions, however, is quite a hassle. The loan application itself is quite cumbersome, and involves excessive documentation and frequent procedural delays. Traditional underwriting mechanisms are not designed for the unique challenges posed by the restaurant industry. The approval on the loan is also subject to various stipulations, such as backing the loan with collateral or showing a profitability record of three years. Repayment schedules are also extremely inflexible and put additional stress on your business’s financial health.

Digital lending platforms, on the other hand, address these working capital issues through technology. By using proprietary algorithms and incorporating non-traditional data points for underwriting, these platforms can accurately gauge your creditworthiness and provide you with highly-customised loan products catering to your specific business needs.

The process of loan application is also quite simple and seamless. You only need to fill a simple application form to apply; the eKYC is done post the in-principle approval of the loan with minimal documentation. Automation in loan processing workflows also ensures that the loan amount can be disbursed in as low as 24 hours of application, post approval. Moreover, since the entire process is digitised, loans can be availed by restaurateurs across the country and is not only limited to metro cities.

Several leading digital lending platforms go a step further to ensure that your business has the financial resources to thrive and grow. For instance, in addition to providing collateral-free loans

between INR 50,000 and INR 50 lakhs to MSMEs, Indifi offers loans of up to 2 crore on outstanding invoices. The loan amount can be up to 80% of the value of the invoice, with the option of flexible repayment (transaction linked, weekly, bi-weekly, and monthly) once the dues are cleared. It also offers a principal moratorium on loans availed for opening a new outlet, with no payments required to be made during this period. In case you have tied up with an online food delivery platform for your restaurant, Indifi’s partnership with leading domain players allows you to link its repayment plans to further reduce your financial burden. The platform also offers the option of in-line financing, enabling you to seamlessly meet your day-to-day procurement requirements.

$783 billion – according to the National Restaurant Association of India, this is the estimated annual sales in the country’s restaurant industry. To put this number in context, the estimated cumulative GDP of Sri Lanka ($93.45 billion), Nepal ($24.06 billion), and Bangladesh ($285.81 billion) in 2018 amounts to just over $403 billion. With the sector also accounting for around 31% of the total consumption basket in India, restaurants are a critical component of India’s GDP. Indifi is on such digital lending platform providing the access to credit required for these businesses to achieve growth and scale – whilst also playing its part in driving the nation’s overall progress.

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