In business, money is always scarce. Even if they could, businesses can’t afford to simply sit on large amounts of working capital. When times are good, there is always one more thing a business could be investing in to become more competitive, to drive growth, or to make itself more efficient. After all, there are always competitors battling to innovate their way to the top of any given industry’s food chain. Stopping to save up an emergency fund is much the same as simply stepping out of the race.
Then, the business loses a major contract, the economy goes into recession, or some other cash flow interruption rears its ugly head. To get through, the business needs to scramble for funds, but without giving up the benefits of any of those previous investments. Alternative financing tools like supply chain finance and invoice finance not only help businesses get the cash they need to deal with surprises, they also help to make businesses more efficient and competitive overall.
Invoice finance provides fast credit-free cash
Invoice finance is a fast way to get a sizeable injection of working capital right when you need it most. Businesses often can’t afford to go to a lender for a loan every time they need money. Not only do loan applications take a lot of time to process, many businesses are already leveraged to a point where additional credit isn’t readily accessible. This is not an issue with invoice finance, because it’s not a loan.
Businesses can simply take one or more of their outstanding invoices, and trade them in to Fifo Capital for most of their value in cash. When it comes due, Fifo Capital then collects the payment on the business’ behalf before paying out the remainder of the funds. Because no borrowing—and therefore not credit check—is involved, businesses can get the money they need almost instantly.
Supply chain finance helps businesses save money
While invoice finance is great for managing a cash flow interruption, supply chain finance allows businesses to regulate their cash flow by making it easier to pay suppliers without relying on timely payments from customers. To do this, businesses pay suppliers whenever they need to out of a separate credit fund, rather than out of their own working capital. Then, after revenues come in, they can pay off the balance on the fund up to 90 days later. Unlike a typical loan, this is a type of off-balance sheet financing, making it an accessible solution for businesses that are already managing a high debt to equity ratio.
Stabilising outgoing payments
The immediate benefit of supply chain finance is that it allows a business to ensure that its suppliers are always paid on time. When cash flow is interrupted due to late payment, equipment issues, or any other reason, the last thing any business needs is to compound the issue by passing that financial pressure on to a supplier, which could damage the relationship, or even interrupt operations due to non-payment. By using supply chain finance to keep suppliers paid, businesses can secure their supply chain, and free up more time and focus to devote to ensuring that accounts receivable is in order.
Getting better deals from suppliers
Paying on time is a great way to endear your business to suppliers, but paying early can help you reduce costs. Fifo Capital’s supply chain finance facility allows businesses to offer early payment to suppliers in exchange for discounts. If a supplier is faced with a cash flow interruption of their own, they can request early payment, which would then be financed by the business’ credit fund. The business still pays off the balance when they ordinarily would have, but the payment itself is reduced. As a result, businesses enjoy higher profit margins, while suppliers benefit from an additional financing option.
Running a business without working capital
Supply chain finance and invoice finance are very useful tools on their own, but they work best when combined. When applied strategically together, businesses can often entirely eliminate the need for any of their own working capital, and fully financing the entire process instead.
By using supply chain finance to pay for supplier purchases, businesses can lengthen whatever payment terms they previously secured by 90 days. Then, when payments are due, they can use invoice finance to collect incoming revenues as soon as invoices are issued. As a result, they can collect the revenues for their product or service before they actually need to pay for its respective production costs.
These kinds of alternative finance tools allow businesses to deal with cash flow issues proactively, while also stabilising their supply chains. More importantly, they allow them to pursue growth more aggressively, and unlock nearly unlimited growth potential for businesses that otherwise wouldn’t have the working capital to support rapid expansion.
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