Businesses are constantly innovating and finding new ways to access the labour, supplies, and markets they need to grow and thrive. Over time, this has driven globalisation, bringing down trade barriers, and helping companies to do business more directly and efficiently over greater distances. It’s also the driving force behind digitalisation in business, giving them the ability to communicate, share data, send funds, and collaborate instantly. However, it has also made financial management much more complex.
Modern businesses, particularly those in the booming tech sector, as well as large enterprises with complex supply chains, need additional tools to regulate cash flow to protect their working capital position. Fifo Capital’s supply chain finance facility is designed to help businesses manage payments independently of incoming revenues, giving them the time they need to deal with the cash flow complications that come with doing business in the 21st century.
Businesses face more financial risk than in the past
Many businesses today have customers as well as suppliers all over the world. They enjoy the opportunities offered by the global economy, but they also face additional complications as a result. Pursuing a late payment is much more difficult and time consuming when the customer is in a foreign country. Businesses who have customers—and chase down payments—in many countries simultaneously can’t guarantee that incoming revenues will arrive in time to make outgoing payments.
At the same time, foreign suppliers for manufacturers and retailers nearly always need to be paid a sizeable deposit before supplies can be shipped. This can lead to disaster for a business dealing with a cash flow interruption, but it’s already problematic for businesses who do have sufficient capital on hand. Long distance shipping can take many weeks, leading to a longer cash conversion cycle, and reducing the business’ overall efficiency.
While supplies are in transit, the business can’t process and sell them to recover their investment and generate profit, effectively keeping that invested capital from being put to other profitable uses in the meantime. Fortunately, supply chain finance combined with trade finance can not only help businesses deal with supplier payments, but also to functionally allow them to hold onto their own capital for longer periods, meaning they need less capital to run their business making them more efficient.
Supply chain finance takes the pressure off incoming revenues
Fifo Capital’s supply chain finance allows businesses to use a credit fund to pay suppliers, instead of issuing funds directly from their own accounts. The resulting balance can then be paid down after revenues are collected, up to 90 days later. This means businesses with COD terms can may have up to 90 days to chase down client payments.
This provides critical breathing room to businesses who are likely always dealing with one type of cash flow interruption or another. Instead of scrambling for a loan, or being forced to take funds from other important projects, they can reliably pay their bills on time, every time. Not only does this reduce the pressure put on businesses to ensure that incoming payments are always timely, it also allows them to make more strategic choices about how much time and effort to invest in chasing down clients at any given time.
Trade finance helps importers hold onto their own capital for longer and put it to use
Supply chain finance and trade finance both work to shorten what is known as a business’ cash conversion cycle. This means that it reduces the amount of time that it takes for a business to generate profit from of any particular investment that it makes, so that the money can be reinvested to produce more profit more often in any given time period.
Since the business doesn’t actually need to pay until 90 days (and up to 150 days for trade finance) after the initial investment is made to the supplier, the cycle is also 90 days shorter than it would have been without financing. Fifo Capital’s trade finance helps businesses to achieve this same effect when importing goods internationally. Traditional trade financing is somewhat helpful, but it cannot be used by businesses to pay an initial deposit out of pocket. Unfortunately, the size of this deposit is often such that businesses still can’t afford it, meaning that the cycle isn’t functionally shorter. Fifo Capital’s facility solves this problem, in that it allows businesses to finance the entire purchase, including the initial deposit as well as pre-shipment payments if the supplier requires.
These two tools work in a similar manner to help businesses stabilise their supply chains, while improving their overall efficiency and profitability. Other financing tools from Fifo Capital, specifically invoice finance, can be used to shorten the cycle even further, sometimes allowing even businesses with complex supply chains to eliminate it entirely. By exploring what Fifo Capital’s financing tools can do for your business, you can not only solidify your working capital position while improving efficiency, but also unlock the secret to fully financing your operations.