The coronavirus crisis is putting enormous pressure on businesses, driving some into administration, while others are forced to lay off workers and scale back due to the extended global lockdown. Even as they struggle to mitigate the damage, business leaders are asking themselves how they’ll manage to recover when restrictions on businesses and the free movement for consumers is finally lifted.

Many companies are already relying on debt and government support to remain afloat right now. When the time comes, many won’t have the access to sufficient credit or investment to finance their recovery. They wonder how they will pay their suppliers to get their operations running again, and whether their customers—who are likely in a similar situation—will be able to pay them. For businesses or the economy as a whole to recover, this uncertainty needs to be addressed.

Companies need alternative financing options like invoice discounting and supply chain finance to get their operations moving again. This provides businesses with fast access to cash that they can use to jumpstart their operations and stimulate renewed growth, which they’ll be able to use to bring back investors, and to access new sources of credit.

Economic recovery requires financial security

Traditionally, businesses rely on investors and credit to finance their operations. However, the economic downturn that the coronavirus has triggered has put businesses into precarious positions that are unattractive to investors, while also making investors generally more cautious. At the same time, businesses are using what credit they can access to keep themselves afloat. When the time comes to get back to work, though, companies are going to be faced with a problem.

In order to recover when the crisis ends, businesses need to be able to pay their employees and their suppliers both to get their operations running, and to ensure that consumers (their workers) have the funds to bring consumer demand back to normal. Additionally, they need to feel secure in their investments, meaning that they need confidence that their customers will be able to pay. The key to providing this financial security will, for many businesses, be an alternative finance tool like invoice discounting.

What is invoice discounting?

Invoice discounting is a way for businesses to secure some payment on outstanding invoices immediately, so that those funds can be reinvested into the businesses as soon as possible. Additionally, it’s a way for businesses to quickly access funds without waiting for a customer to get around to payment. Rather, the initial payment comes from their financial institution.

Instead of waiting for invoices to come due and customers to pay their bills, businesses can exchange the outstanding invoice for cash up front by working with an institution like Fifo Capital. When discounting the invoice, Fifo Capital issues most of its value in cash within a few hours, and the remaining funds when the client makes payment. Unlike a loan, this does not involve borrowing any funds, so only a very quick credit check is needed. Additionally, this means that funds accessed in this way are not considered loans, and do not involve the business taking on any additional liabilities.

Using invoice financing to boost your recovery

Coming out of the coronavirus lockdown, many businesses will face significant debt, and be forced to attempt to revitalise their operations on very tight budgets. This might make it difficult to manage the costs of scaling their operations back up to a profitable level, which is necessary to begin any meaningful recovery. Invoice finance, as well as similar tools such as supply chain finance, can help businesses to boost the limited working capital available to facilitate their growth. Most importantly, invoice discounting is a way for businesses to increase the total capital available to them without impairing their ability to borrow or attract investment.

The benefit of credit free financing

Because invoice discounting doesn’t require businesses to borrow money, it doesn’t impact their debt-to-equity ratio. This makes it easier for businesses to concurrently access credit, or to attract investment to finance growth. In the end that means more possible funding sources for businesses who will already have stretched many of their traditional options to their limits.

The coronavirus pandemic presents businesses all over the world with an unprecedented challenge. For many, though, the real work will only begin when lockdowns are lifted, and the time comes to get the economy back on its feet. In order to return to growth, businesses need financial security both for themselves and for their customers. Invoice finance, as well as other alternative financing tools can provide them with the means to get back on their feet as quickly as possible. To explore how these options can help them, it’s important for business leaders to work together with their financial representatives, and discuss what approach will best serve their business.

Contact your Fifo business advisor or visit https://fifocapital.ie/invoice-finance/ for more information.