Doing business inherently means taking risks. Unfortunately, those risks don’t always pay off. Bad investments, cash flow interruptions, and unexpected shifts in the economy can derail otherwise well laid plans. Recovering from these kinds of setbacks presents a major financial challenge, as businesses are often left without the funds needed to find a new way forward. In situations like these, alternative finance tools like invoice finance and supply chain finance represent a unique opportunity for businesses looking for a way to get back on their feet, and return to growth.
Currently, businesses all over the country are revising their growth strategies in response to a summer dominated by bushfires, floods, and trade interruptions. Not only have these events affected many companies directly, they’ve also depressed consumer confidence for several months, depriving businesses of the revenues they need to fund future growth. In some cases, hard-pressed businesses might even face interruptions to their operations due to a lack of cash flow. Alternative finance tools such as those offered by Fifo Capital provide businesses with a way to get their cash flow back on track, and to access that much-needed short term growth capital.
Businesses need accessible financing options
Many Australian businesses have been battling against an economic headwind for months. As a result, many have been forced to take on debt as a way to keep their operations running, which has left them with high debt-to-equity ratios. This, in turn, makes it more difficult to qualify for loans going forward, and to attract investors to fund growth. In order to recover, these companies need other financing solutions that don’t just help them to fund their operations and manage cash flow, but also protects their balance sheets.
Using credit free financing to get back to growth
Alternative finance options, such as Fifo Capital’s invoice and supply chain finance facilities, offer businesses a way to access the funds they need without taking on debt. These tools allow businesses to make more of the assets they already have, rather than taking on any new liabilities. They can do this by extending their payment terms on one hand, and bringing in revenues sooner on the other. Better yet, each of these can be applied flexibly—and on short notice—to minimise costs to the business while maximising utility.
Supply chain finance
Businesses are often forced to choose between paying suppliers on time, and making necessary investments in themselves. Supply chain finance allows them to keep their commitments, while still freeing up existing working capital to fund growth. Rather than paying suppliers directly, businesses can work with a financier to pay suppliers on their behalf. Payment to the financier can then be deferred, giving the business more time to use those funds for other purposes, such as managing a temporary budget shortfall, or making a short term investment.
Invoice finance allows businesses to access incoming revenues sooner. Rather than waiting for a customer to make payment on an outstanding invoice, they can work with a financier to exchange it for cash. The financial institution will pay out most of the value of the invoice up front, and collect payment from the customer before issuing the remainder, less their fee. This allows businesses to quickly come up with liquid funds, even when there isn’t any working capital on hand.
Fully finance your operations
Often, businesses can combine these two types of financing to fully finance their operations, rather than reinvesting their own capital. This is done by shortening their cash conversion cycle to the point that supply payments for shipments don’t fall due until after the respective revenues that those supplies ultimately generate are already received. This is initially done by using supply chain finance. Fifo Capital’s supply chain finance facility allows businesses to defer their payments by up to 90 days after the supplier invoice is issued. If 90 days is enough to turn those supplies into revenues, no further steps are needed. However, if more time is needed until client payments are due, the business can use invoice finance to get paid instantly.
So long as the business can sell its products and issue their own invoices before their supply payment to their financier is due, they’ll be able to fully finance their production cycle. Businesses that previously relied on a set amount of working capital to fund their production process can use this to permanently free up that capital for other purposes. More importantly, it can allow businesses, who lost the production capital they needed, to return to business as usual immediately.