It’s difficult for businesses to determine how much to invest in their own growth, and how aggressively to pursue opportunities that present themselves. Driving innovation and product development, hiring and training new workers, expanding facilities, and other costs of growth ultimately draw on working capital that is needed elsewhere.

shutterstock 356361521 300x210 - How supply chain finance and invoice finance enables businesses to invest in themselves

Most importantly, a business’ production capacity is limited by the funds it can immediately invest in supplies and labour. By diverting funds to longer term growth efforts, businesses can temporarily lose the ability to fill large-volume orders. If this is combined with a cash flow interruption of some kind, such as an equipment malfunction, or late customer payments, it could even disrupt the business’ operations. To limit this risk, businesses are using a combination of supply chain finance and invoice finance to fully finance their operations, allowing them to focus their working capital on driving structural growth.

Fully financing your operations

In order to free up all of your working capital for growth purposes, a business first needs to find a way to fully finance its operations. To do that, it needs to reduce what is known as its cash conversion cycle (CCC) to below zero. This means reaching a point where the revenues for any given product or service are collected by the business before the inputs that were needed to produce it need to be paid for. While long supplier payment terms can go a long way to achieving this, many businesses can’t get good terms, and those who do most often still need more time. Supply chain finance and invoice finance give your business the time it needs.

Invoice finance brings revenues in sooner

Invoice finance is a financing tool that allows businesses to get paid sooner than their payment terms require. Instead of waiting for a customer to pay an invoice on or after payment is due, the business can trade it in to Fifo Capital for most of its value as soon as it is issued. Fifo Capital then receives the payment from the customer when it’s due, before issuing the remaining funds.

Effectively, this means businesses can collect the revenues they need to pay bills and fund their operations at the time that customers are invoiced, instead of when they pay that invoice.

Supply chain finance delays outgoing payments

Supply chain finance addresses the other side of the cash conversion cycle equation, by delaying the time at which businesses are required to pay for inputs. Instead of paying suppliers directly, a financier pays. Payments on the amount paid by the financier can then be delayed by up to 90 days, giving businesses the time they need to turn those inputs into products and services, and to sell these. As long as they can invoice the respective customers that buy any given product before those 90 days are up, their cash conversion cycle is then below zero, meaning their operations can be financed entirely using this process.

How closing the CCC enables growth

Financing operational costs frees up all of the capital that was previously tied up in simply making the business run. Instead of focusing your efforts almost entirely on production, you can then apply those funds to growth instead. Whether that means setting up a research and development team to drive innovation, hiring and training new employees, acquiring new floor space and equipment, or building a first rate sales and marketing team, financing is ultimately what makes it possible for businesses to invest both in their current operations, and their future.

Dealing with cash flow interruptions

A business that’s already using financing to fund its everyday operations may not have any additional invoices to finance to cover a temporary cash flow interruption. Fortunately, the most common of these, late customer payments, is eliminated by the financing itself. Because Fifo Capital receives customer payments on its own, businesses no longer need to worry about ensuring that customers pay on time.

Other types of cash flow interruptions might still represent a problem, however. Fortunately, Fifo Capital works with businesses to address these issues as well. Unlike more traditional financiers who rely almost solely on your credit profile for information, Fifo Capital makes financing decisions based on a comprehensive, 360 degree knowledge about your business and its operations. This allows you to work with a dedicated representative who knows you and your business to access business finance and other types of short term finance almost instantly, ensuring that your business continues to run smoothly, and effectively rounding out your business’ entire financing strategy.

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