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One of the strategies to effectively manage working capital is by maximising your input tax credit (ITC) claims. In 2019, the government had introduced the concept of provisional ITC, where businesses could claim 20% ITC as provisional ITC. This limit was further reduced to 10%, then 5%, and there is an absolute restriction, i.e. 0%.
This means that ITC claims will be restricted only to the extent that the respective vendors upload their invoices and debit notes in their Form GSTR-1 or through the Invoice Furnishing Facility (IFF). These claims must then be reflected in the recipient taxpayer’s (buyer’s) GSTR-2B to claim ITC. Hence, just by ensuring that 100% input tax credit is claimed on every invoice, a task that is challenging to achieve without automation, businesses can minimise their GST cash outflows. This way, they strategically unlock working capital.
The new ITC amendment has also increased the dependency on vendors, creating a need for an automated system of vendor communication and follow-up. And in the case of non-compliant vendors, the necessity for payment holding is the need of the hour. Why should your business suffer just because your vendors don’t comply?
Clear has recently launched Clear Max ITC, India’s first solution for maximising input tax credit claims and completely automating vendor communication and payments.
Clear Max ITC offers a host of unique features that are proven to maximise ITC claims and unlock your working capital-
First, the Clear Max ITC platform forms a two-way connection with an enterprise’s ERP/accounting system. This helps schedule auto-reconciliations of the GST data at frequent intervals and sync vendor payment decisions. For example, an enterprise can set its vendor payment terms to automatically withhold the GST amount or the entire amount due in cases where the vendors have not filed their GST returns. This decision can then be synced to the ERP for all future payments.
Next, the AI-based tool runs automated data matching at frequent intervals with 100% accuracy. If any missing invoice or missing data is detected, an automated communication is sent to the vendor via email, WhatsApp, etc. Over time, the volume of defaulting vendors reduces, and ITC optimises, thereby unlocking working capital.
Clear Max ITC helps businesses reduce their GST cash outflows and increase profits by up to 7% through ITC maximisation. To know more about maximising your business’s ITC claims, please visit the Clear Max ITC website here.
This article is the last in the series ‘Understanding the facets of working capital management’.
Also read –
How important is working capital for the growth of an enterprise?
Common challenges faced by enterprises in working capital management
5 strategies to effectively manage your working capital