A growing proportion of businesses rely primarily on the Internet to operate, existing almost entirely online. Their workspaces, as well as their products, are often entirely digital. Many, and occasionally all of their suppliers and employees are likewise online, and exist as part of a much better connected global market than the physical world that most businesses function in.
While this model allows businesses to much more easily operate internationally, it also comes with some decisive disadvantages. It’s much more difficult to chase down late payments from foreign customers, which can make revenues more irregular than in other industries. This naturally makes it difficult to keep suppliers paid, and therefore to operate stably in the long term. Fortunately, Fifo Capital offers financing tools to address precisely this type of issue. Supply chain finance, as well as some other alternative finance tools, help these kinds of businesses to issue regular payments, even when revenues are sporadic.
Digital businesses face an uphill battle when it comes to cash flow
A digital business can be anything from a digital marketing firm, to an e-commerce store, to a VPN service, to a web design firm. Not only do these kinds of businesses operate partly or entirely online, they also rely on foreign digital suppliers for software licenses, data, or digital products like text or video content.
Their customers are often scattered across the globe in a similar manner. This allows businesses to access customers from all over the globe, which makes them very competitive against more locally oriented businesses. However, that also means invoicing and collecting payments from international customers, who typically suffer the same cash flow difficulties as any other business. Compared to their more local suppliers, there is relatively little pressure that a moderately sized foreign digital business can exert to ensure timely payment. Because of this, digital businesses frequently suffer from chronic cash flow difficulties.
Delaying payments is not an option
Many types of businesses suffer from late payment issues, but this is particularly difficult for these kinds of digital businesses. Normally, businesses can respond to late payments by simply paying what expenses they can, and delaying some of their own outgoing payments until revenues come in. Unlike more traditional companies, though, the suppliers of these kinds of enterprises are often small contractors and freelancers who rely on timely payment as their primary personal income. Delaying payment can very literally turn the lights off for them.
Micro-suppliers like this are unlikely to continue a relationship where payment isn’t reliable. Moreover, many will simply be unable to continue working without regular payment. In order to ensure their own stable functioning, digital business need to make sure that their suppliers are paid on time.
Supply chain finance gives businesses the breathing room they need
Ultimately, digital businesses, like all businesses that suffer from late payments, need more time. Supply chain finance is specifically designed to provide it. Instead of waiting for revenues to arrive before paying suppliers, businesses can simply use a separate third party credit fund to pay their suppliers when payments are due. Payments on the fund can be deferred by 90, and sometimes even 120 days, giving businesses plenty of time to chase down any late payments. Once incoming payments are collected the balance can be paid down and the cycle repeats. This gives businesses the flexibility they need to operate in a global digital business environment that isn’t as well regulated as more locally oriented industries, even if they don’t have substantial investor backing.
Stabilising your supply chain
Small contractors and other suppliers face many of the same financial instabilities as larger digital product and service providers. To help them smooth over their own cash flow difficulties, supply chain finance also allows businesses to offer their suppliers early payment. To access it, the supplier can offer the business a discount on the outstanding invoice. If the business accepts, this is paid immediately, and the business enjoys a reduction in supply costs.
Using invoice financing to deal with difficult invoices
In some cases, chasing down a payment can be particularly difficult, whether it’s because of the client’s location, or their relative size and bureaucratic complexity. In these cases, businesses often opt to use invoice financing. This allows a business to simply trade the outstanding invoice in to Fifo Capital for the majority of its value. Fifo Capital will then go on to collect the payment on its own, before issuing the remaining funds, less a predetermined fee.
Digital businesses are working with both customers and suppliers in a business environment that governments and regulators understand only poorly. Because of, and in spite of that, this global, digital environment provides incredible opportunities, as well as difficulties for businesses that operate in it. By using supply chain finance, as well as other financing tools like invoice finance, businesses can get the flexibility they need to function, while also ensuring the stability and success of their suppliers.
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