Invoice finance and supply chain finance are a great way for businesses to come up with cash on short notice. Used systematically, they can help them to generally shorten their cash conversion cycle, giving them the opportunity to invest the same working capital to produce returns more often in a given time period. The result is a generally hardier, faster-growing enterprise.
These types of financing tools, however, are extremely versatile, and can be put to a wide range of more situational uses, from managing short-term budget shortfalls, to financing growth investments. Businesses who do this well can make themselves more resilient and financially stable, while also accelerating their growth.
The catch is, of course, that off-balance sheet financing like this doesn’t give businesses any new assets. Instead, it provides liquid capital by delaying outgoing payments, or accelerating incoming revenues. This means that these investments need to produce returns to avoid simply pushing the budgeting issue into the future.
Growth investments should produce fast returns
Supply chain finance can extend payment terms by up to 90 days, while invoice financing ensures that businesses can be paid at the time of invoicing, cutting short whatever payment term the client had. These are the time periods in which the business has access to capital that it otherwise would not have had, and it’s the time period in which that money can be put to other uses. Any investment made should produce returns within that time frame in order to avoid future budget shortfalls.
For example, a business might use supply chain finance to extend itself a 90 day payment term on an outgoing payment. The money it would have used to pay the supplier can then be applied to something else, such as growth. If the business, however, decides to invest the money in something that won’t pay for itself within 90 days, such as, for example, a redesign of their website, it won’t have those funds available to pay the supplier payment at the end of that time period. Because of this, it’s important to pursue a short term return on investment with this type of financing.
One of the simplest and most direct ways to drive growth within a limited time frame is to use pay-per-click (PPC) advertising. This describes any form of online advertising where the cost is determined by viewer engagement. Most commonly, this means using Google Ads to show search ads for particular keywords. By experimenting with different keywords, and tracking the click rates and conversion rates of those users, businesses can quickly determine the overall effectiveness and profitability of these kinds of investments.
Because this type of advertising is paid for by the click, the costs increase marginally depending on the success of the campaign. As a result, whatever costs are accrued in any given time frame will be paid for by the resulting revenues. This makes it a very safe way to invest temporary funds while growing your business.
While PPC is a safe investment, it’s not always effective. Low user engagement with your ads—which is common for businesses who are still optimising their strategy—can result in funds simply lying around unused. This is not an issue with influencer marketing. Like more traditional offline marketing, influencer marketing effectively leverages the popularity of minor celebrities to reach a large target audience. This can be extremely effective depending on the quality of the endorsement, and the number of viewers involved. More importantly, it’s also cumulative. A YouTube video endorsing your business may continue to receive new views for years, and an ongoing influencer campaign can generally raise the profile of your business in the long term.
Because of this, a successful influencer campaign has the potential to produce a much better return on investment than a successful PPC campaign. On the other hand, an unsuccessful influencer campaign might fail to pay for itself in the short term, meaning that this kind of outreach involves more risk.
Besides these, there are many other ways to use short term financing to grow your business, ranging from traditional radio advertising to search engine optimisation. Finding the best growth solutions for your business is about exploring and getting creative with all of the available options. By finding ways to safely drive growth within the constraints offered by this type of financing, businesses can gain an important competitive advantage over those who simply view it as a type of emergency fund.