Why SMEs should prepare for economic uncertainty
In this current economic climate, monetary good times in important sectors of the markets and the economy are uncertain and unpredictable. Economic trends are one of the many environmental, external factors which can affect businesses. Although they relate to the economy on a greater scale, they have a profound effect on the internal operations of any and every company. Examples include interest rates, recessions, inflation and taxes — and can be seen in businesses of all sizes, from SMEs to multi-national corporations. These concerns affect aspects of a business connected to goods, services and most commonly, cash flow.
Small-business owners often experience banks routinely rejecting applications for loans that they urgently need. In addition, many have been restricted to limits on their credit cards since banks seek to limit their risk amid economic turmoil.
According to the Small Business Credit Survey, many small businesses experienced improved performance in 2017 and expressed heightened optimism for revenue and employment growth in 2018. From this study, we can speculate that conditions seem to have improved. But with economic uncertainty and regulations designed to eliminate bad lending, bank loans continue to falter. Businesses that fail to appreciate the power of the current economy will have serious implications that can transcend its financial stance. Having to file for bankruptcy or scrambling to keep a business afloat is something entrepreneurs avoid having to face during a financial crisis.
When it comes to cash flow management, timing is everything. Even if you anticipate that a cash crunch is likely to happen, deciding exactly when to pursue capital for your business matters considerably. SMEs must consider the impact a lack in working capital can cause to its day-to-day operations if they dwindle into a situation where they don’t have necessary funds available in the event of an unexpected expense or economic downturn. Therefore, the more prepared and stable your financial health is, the less impact will transpire.
Lending alternatives
There has been for some time now, alternative funding options, with a majority of lending companies emerging during a credit crisis. Cash flow solutions such as invoice financing, although unconventional, is now considered as a dynamic and logical approach for SMEs to release cash from their outstanding receivables. The asset-based lending method is an effective formula consisting of selling invoices outstanding from customers during a funding squeeze, and are able receive up to 90% of the invoice value. An influx of cash can be used to see out growth plans, and level the playing field when it comes to meeting order demands and awaiting payment from customers.
What types of businesses use invoice financing?
Typical types of businesses that would seek invoice financing are start-ups with little or no credit history, growing companies that are profitable but cannot obtain sufficient financing from banks, and companies that have a lack of cash flow but nonetheless have viable purchase orders. A study from the SBCS report shows that six of ten applicants most frequently sought credit for expansion, which is a promising sign for the economy, whilst a majority of SMEs engaged in selling invoices to alleviate cash flow issues and cost pressures that required an infusion of funding to pay for operating expenses, including wages, and refinancing costs.
Invoice finance providers are more inclined to look past the net worth or financial history of a company, but instead seek to determine its eligibility by looking in depth at previous purchase orders. These findings will enhance a business’s success rate for invoice financing if it significantly provides proof that the company is actively in demand by its customers with a catalogue of invoices
As the demand for alternative funding solutions rise, there are more options available than ever before. One great advantage of invoice financing is that it presents itself as an encouraging catalyst that offers funding to inspire entrepreneurship. The invoice finance market is undoubtedly set to change the landscape of SMEs, and provide opportunities to accomplish longevity amongst their competitors and stand a greater chance at winning against economic climate changes.
Lou Chan, Populous World.
If you are a start-up or wish to release funds to grow your business, find out here how Populous World can help your business unlock cash in 24 hours - our team of expert funding specialists are here to help:
