Sahaj Solar Limited, a publicly listed Micro, Small, and Medium Enterprise (MSME) headquartered in Ahmedabad, Gujarat, is a prominent player in India’s renewable energy sector. Specializing in the production of solar photovoltaic panels and turnkey renewable energy solutions, the company operates a single manufacturing facility in Bavla, Gujarat. As one of the top ten solar markets in the world, India provides a dynamic yet challenging environment for Sahaj Solar Limited. The company’s clientele primarily includes corporate entities, government bodies, and renewable energy developers. However, the absence of formal contracts or long-term agreements with clients means that Sahaj Solar depends heavily on maintaining strong relationships and consistently delivering high-quality products.

A key challenge for Sahaj Solar is its prolonged cash conversion cycle, caused by delayed payments from customers. The company’s reliance on a limited number of clients restricts its ability to demand early payments without risking potential business loss. This creates a ripple effect, making it difficult for Sahaj Solar to meet its payment obligations to suppliers on time, which strains its supply chain relationships and operational efficiency.

To address these working capital constraints, the Trade Receivables Discounting System (TReDS) offers a transformative solution. By enabling invoice discounting through a digital platform, TReDS facilitates faster payment realization without compromising client relationships. However, on boarding on to the TReDS platform raises concerns such as increased capex investments for technology, complex documentations, requirements of skilled labour, disclosing sensitive buyer and invoice information etc. which may be problematic for a smaller company such as Sahaj. This case study presents a decision dilemma to the chief financing officer (CFO) of Sahaj Solar Ltd. on whether to adopt TReDS or not.

This case serves as a learning tool for understanding the financial struggles of MSMEs in the renewable energy sector and the innovative strategies they can adopt to improve working capital management. It also provides insights into the potential of digital platforms like TReDS to revolutionize supply chain financing and enhance operational sustainability and the challenges it can pose to MSMEs.

Learning Objectives

1. Analyse the impact of prolonged cash conversion cycles on the financial health and operational efficiency of MSMEs like Sahaj Solar Limited.
2. Understand the concept of factoring and reverse factoring and its role in improving cash flow for suppliers while maintaining client relationships.
3. Examine how innovative financing mechanisms, such as the Trade Receivables Discounting System (TReDS), can address working capital constraints.
4. Assess the financial and operational implications of implementing TReDS for buyers and suppliers in the supply chain.