Australian businesses are facing a sales slump in several sectors, particularly in property related businesses such as real estate, and insurance firms. Additionally, services such as interior design, education, and personal care services have been strongly affected. The survey of over 30,000 businesses by Invoice2Go found that smaller businesses were particularly hard-hit, with sales falling an average of 7 percent since last year.

fundraising with the crowd - Use supply chain and invoice financing to manage contracting revenues

 

A well managed business can deal with and recover from financial setbacks like this, of course. To do so, however, businesses need to be able to absorb disproportionate near term costs while preserving their ability to secure financing in the future. This is where invoice finance and supply chain finance come in. These tools allow businesses to boost their working capital in the near term while keeping their balance sheet in order. As a result, they’ll be in a better position to secure financing and return to growth as soon as possible.

Downsizing costs need to be managed carefully

Dealing with an unexpected sales slump inherently comes with a financial burden. A business that was expecting to do more business will have already purchased supplies, labour, and equipment in anticipation of growth, or at least a maintenance of the status quo. When those sales don’t materialise, those resources are left idle, and fail to produce the necessary revenues to pay for themselves. In order to adapt to lower demand, businesses need to reduce their operational capacities by cutting supply costs and potentially engaging in layoffs. Costs that were already incurred before, though, still need to be paid, resulting in a cash flow hangover.

Businesses who aren’t able to absorb these costs on their own are often forced to rely on loans, or simply delay outgoing payments. Loans are a viable solution, but they can cause problems in the longer term. Additional debts on a business’ balance sheet can harm their ability to secure investors, and to access future, more strategic loans for growth purposes.

Alternative financing offers tailor-made solutions

Invoice finance and supply chain finance are types of off-balance sheet financing. This means that they don’t involve taking on any debt, and therefore don’t appear on the business’ balance sheet. This is extremely helpful in ensuring that businesses can not only make it through a downturn, but that they can also begin growing again as soon as possible.

Invoice finance

Instead of borrowing from a third party, invoice financing allows businesses to borrow from themselves. They simply trade an outstanding invoice in for an upfront payment from their financial institution. The financier then uses the invoice to collect the payment from the client, before issuing any remaining amount to the business. In the meantime, the business can use the upfront payment to cover any more immediate costs.

Supply chain finance

Supply chain finance doesn’t actually supply any additional capital for a business, but instead works by delaying outgoing payments. Instead of paying an outstanding payment at the typical due date, a business can work with a financier to have them pay the supplier on their behalf. The payment to the financier, though, can be deferred by up to 90 days, giving the business more time to generate the revenues it needs to cover costs.

Use financial breathing room to regroup and boost growth

Once these costs are dealt with, the business can begin to address the larger issue of growth. To reverse a significant drop in sales such as businesses are experiencing right now, businesses need to develop an appropriate response. They will need to develop new strategies to boost sales, whether that means working to consolidate more of their respective markets, finding ways to boost demand, or expanding into new markets.

Develop and fund a growth strategy

Developing a new growth strategy is the first step to recovery for a business that’s looking to reverse a market-driven contraction. After all, driving growth during tougher economic times is fundamentally different from the more natural growth businesses can benefit from while demand for their industry is increasing. What off-balance sheet financing tools like invoice finance and supply chain finance provide is the clean balance sheet needed to secure funding for the implementation of that growth strategy.

Growing a business after a setback, and a shift in market conditions, can be a tricky and relatively costly endeavour. Alternative financing tools like those offered by Fifo Capital allow businesses to not only manage the initial costs of that shift, they do so without jeopardising their ability to fund their future growth efforts.

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