As a small or medium-sized enterprise (SME) and business-to-business (B2B) company owner, you may realize that the complex process of managing payment commitments is not just a financial necessity but the very backbone of your business's long-term prosperity. In this article, we will explore the essential aspects of effective payment commitment management that have a profound influence on the future of your SME. 

These include the Debt Service Coverage Ratio (DSCR), the constant challenges posed by current liabilities, the payment timelines from your valued clients, and an opportunity to enhance your financial prowess by integrating alternative business financing solutions, such as invoice financing and purchase order financing, into your strategic business planning.

Understanding Debt Service Coverage Ratio (DSCR)

The Debt Service Coverage Ratio (DSCR) is a financial metric used to evaluate a company's potential to meet its debt obligations. It reveals whether a company generates sufficient cash flow to satisfy its debt repayment obligations, including principal and interest payments.

DSCR is a crucial financial indicator with multiple implications for SMEs like yours:

What does DSCR mean for SMEs?

1. Financial health assessment. The DSCR serves as a financial evaluation for your business. It measures your ability to effectively manage your debt load. To explain, a DSCR greater than or equal to 1 indicates that your company generates sufficient operating income to satisfy its debt obligations, which means that the greater your DSCR, the stronger your financial health.

Suppose you are a business owner managing your company finances. Your DSCR can be compared to the ratio of your company's monthly rent and loan payments to its income. 

How to calculate or compute DSCR for SMEs

2. Creditworthiness. Lenders, such as banks, investors, and other alternative financing institutions, such as crowdfunding platforms like Investree Philippines, frequently use DSCR to assess the creditworthiness of SMEs. If your DSCR is high, it indicates to lenders that you have a lower risk of loan default, making it simpler for you to obtain financing on more favorable terms.

3. Investment decisions. DSCR can help SME owners make informed investment decisions. For example, if you're contemplating taking on additional debt to expand your operations, a healthy DSCR provides confidence that you can manage the new debt without straining your cash flow.

In the example in number 1, a DSCR of 5 indicates that your monthly operating income from your B2B contracts is five times greater than your monthly loan payment expenditures. This also means that you have enough room to borrow in order to expand your business, i.e., you can increase your borrowings to a level that will make you pay an additional P400,000 per month in loan payments in order to breakeven your income of P500,000. You may use these additional borrowings to buy new equipment, stock more inventory, or hire more people.

If you have growth or expansion plans, you must have a solid DSCR. It ensures that you can incur additional debt or invest in new opportunities without jeopardizing your existing financial obligations.

4. Risk mitigation. A DSCR below 1 means that your income is insufficient to cover your debt obligations. To avoid financial distress, you must either increase your income or reduce your debt as soon as possible.

Managing your existing financial obligations or current liabilities

Current liabilities are short-term financial obligations that your business must resolve within a year. It is essential to effectively manage these liabilities to maintain financial stability and fulfill payment obligations. Here is a more specific breakdown of what you need to focus on:

How to manage current liabilities or financial obligations

1. Monitor your current liabilities

This entails reviewing and monitoring the payment timeframes of your accounts payables, short-term loans, and other short-term obligations. By keeping a clear view of these obligations, you can ensure that they are paid on time to avoid late fees and penalties.

Let's assume your company has a supplier with a 60-day payment term. Monitoring your accounts payable ensures that you resolve these invoices within the specified timeframe, thereby avoiding late payment fees and maintaining good relationships with your suppliers.

2. Effective working capital management

Consider working capital as the essence of your business, as it is significant for daily operations. Effective working capital management requires achieving a balance between your current assets (such as accounts receivable and inventory) and current liabilities. This balance guarantees you have sufficient liquidity to satisfy your short-term obligations.

For example, you may consider a company with P50,000 in accounts receivable and P30,000 in accounts payable. To maintain efficient working capital management, you should ensure that you have sufficient cash or liquid assets on hand to cover the 30,000 in accounts payable when they are due, while reserving the remaining 20,000 for unforeseen expenditures.

3. Setting date reminders

Setting up date reminders can be a game-changer for SMEs like yours, as organization is crucial to managing payment commitments. Digital tools, automated reminders, and software make scheduling payment dates easier than ever, ensuring you never miss a deadline. You may link these reminders with your calendar or money management software for timely alerts and peace of mind.

4. Beware overlapping commitments

It's vital to meet payment obligations without overcommitting resources. SME owners typically have to balance several financial obligations. This may limit cash flow and make it hard to meet commitments. Assess your financial capabilities before making additional commitments to reduce this risk. Analyze your obligations and dates to create a financial blueprint. With this proactive approach, you may make educated decisions and avoid overstretching.

Handling Client Payment Timelines

To maintain a healthy cash flow, it is essential to effectively manage remittances received from clients. Here is a more detailed explanation of what you should do:

How to handle client payment timelines

1. Establish clear payment terms

Creating a road map for financial transactions means establishing clear payment terms with your clients. Your invoices should include payment due dates and any applicable late payment fees. This clarity not only establishes client expectations but also encourages adherence to payment schedules.

If you provide consulting services and bill clients on a monthly basis, your invoices should specify that payment is due within 30 days of the invoice date, with a 5% late payment charge assessed for payments received after the due date. This clarity helps customers understand their payment obligations.

2. Implement invoice tracking

Having a well-organized filing cabinet for your finances is similar to implementing a robust system for tracking invoices and payments. This process can be streamlined with automated invoicing software, making it simpler to create, send, and track invoices. These systems reduce the possibility of errors and provide a real-time view of outstanding payments.

If you use accounting software, you can easily generate invoices, send payment reminders, and monitor payments received. This automation saves time and reduces the likelihood of missing delinquent invoices.

Incorporating invoice financing and purchase order financing from Investree Philippines into your B2B business financial planning and strategy

If you are a B2B business owner who is constantly seeking ways to optimize your financial and operational strategies, invoice financing and purchase order financing from Investree Philippines  are innovative financial resources to help your business grow and manage its payment commitments more efficiently.

What is invoice financing and purchase order financing for SMEs?

Diversifying funding sources for B2B growth

In business-to-business (B2B) transactions, access to working capital is analogous to the fuel that powers your operations. Consider invoice financing and purchase order financing from Investree Philippines as alternative financial resources that can complement your existing financial portfolio. 

To provide more ideas about these types of alternative supplier financing resources:

1. Invoice financing

Consider this type of business financing or business loan a streamlined approach to managing your cash flow. When you have outgoing or unpaid invoices from your clients, Investree Philippines can provide you with the funds against those invoices, providing you with the working capital you need  when you need it. This allows you to invest in new opportunities, pay suppliers on time, or simply manage your day-to-day expenses more efficiently.

Here is a scenario to help you better understand how this type of financing works and how it can help you better manage your financial commitments.

You operate a business-to-business (B2B) and procure raw materials from various suppliers in order to manufacture your products. You have successfully paid your suppliers for the raw materials and delivered your corporate client's order. However, you and your client have agreed to a 60-day payment term, which impacts your cash flow.

In this scenario, managing payment obligations presents a significant challenge. Invoice financing from Investree Philippines becomes a valuable tool for addressing this issue. This type of financing provides you with additional working capital equal to up to 80% of the unpaid invoice amount for the delivered products. This financial boost bridges the cash flow deficit caused by the client's extended payment terms.

Hence, utilizing invoice financing enables you to meet your immediate financial obligations to suppliers. This keeps your supply chain organized and effective while also enabling you to keep up with your payment obligations and effectively serve your clients. 

Maintaining strong supplier relationships, avoiding late payment penalties, and sustaining the financial health of your SME necessitate that you manage your payment obligations effectively in such situations. This approach to payment commitment management is crucial to the success of SMEs like yours.

2. Purchase-order (PO) financing 

Think of it as a way to fuel your business's expansion. Investree Philippines steps in when you receive a substantial B2B purchase order but lack the immediate resources to fulfill it. The crowdfunding platform provides the necessary financing to fulfill the transaction, ensuring that you can keep your promises to clients and pursue growth opportunities without being heavily affected by capital constraints.

Here is a scenario to help you understand how purchase order financing works:

You are an SME manufacturing company in the Philippines, and you have secured a significant purchase order worth 1,000,000 pesos. However, your current resources are insufficient to cover the production costs necessary to fulfill this order.

Purchase Order Financing from Investree Philippines can be a solution at this crucial juncture for managing your payment commitments. They provide the necessary funds, allowing you to quickly purchase essential materials and cover production expenses. Using this financing, you are able to efficiently complete the order and guarantee on-time delivery to the client.

On the other hand, this financing can be strategic for your business as it strengthens client relationships by ensuring timely delivery. It also enables you to meet your payment obligations promptly, thereby avoiding any potential late payment penalties or business interruptions and ensuring the financial stability of your business, which also paves the way for its long-term growth and success.

Investree Philippines, the first permanently licensed fintech crowdfunding platform here in the Philippines, offers alternative business financing or supplier finance options, such as invoice financing and purchase order financing. These financing alternatives can help you gain access to financing that may not be available through traditional financing institutions. Through the additional working capital Investree Philippines can provide your business with, you can leverage your SME and achieve continued business growth.

Explore Investree’s crowdfunding platform to learn more about its collateral-free, reliable, and risk-based invoice financing based on a debt crowdfunding concept with low interest rates and flexible payment terms at  To learn more about business growth strategies, the benefits of crowdfunding platforms for SMEs, invoice financing, or purchase order financing, you may read more articles here.