In our previous posts, we discussed how corporates and banks are benefitting from alternative finance services to reach a broader customer base and compete in the global economy. While this is the case, perhaps the biggest beneficiary of all are the small and medium sized enterprises (SME’s) that comprise a large portion of our economy and employ nearly fifty percent of the private U.S. workforce.
In this post we’re going to look at financial solutions and financial partners that best position Suppliers for success.
When it comes to suppliers and their objectives, growth is almost certainly Priority #1 for 2019 (and probably numbers 2 and 3 as well). Achieving their growth trajectories can be arduous indeed, as managing a business’s working capital during periods of strong growth can be difficult.
Employing a robust finance program can be a key factor in achieving growth, especially when an increase in working capital is needed to meet customer demand. But which type of finance program is best? A bank loan, receivables finance, factoring or some other type of arrangement?
Bank Loans
With rapid growth, securing a bank loan can be challenging. Debt financing does not lend itself well to growth as a bank will often limit the number of loans you can receive. Debt financing can also have an adverse effect on your credit. Banks can also be quite restrictive when it comes to lending to SMEs, especially those with limited credit experience.
Factoring
Factoring is another option, but it can be quite expensive. Rates are very high and with their customary fees, your true APR may be significantly higher than you anticipated. Most businesses like to have control over which invoices they choose to accelerate, and with factoring, you are often required to assign your entire portfolio to the factor. This may not be in your best interests or the best way to meet your financial objectives.
AltFi: The Optimal Solution for Many Suppliers
An AltFi solution like receivables finance can be the optimal solution for many suppliers. With receivables finance, suppliers benefit from non-debt financing, a lower cost of capital, flexibility with invoice selection, up to 100% advance rate and predictability of payment. Each of these can be significant in facilitating expansion and helping you to meet your business goals.
Non-debt financing is beneficial for a multitude of reasons – there is no payment over time and businesses have access to increased funding as needed, without any potential risk to their credit. Businesses growing at a rapid pace often have unexpected capital needs. Getting turned down for additional capital at a critical stage in your business growth can be especially problematic.
Surging demand can put constraints on all sorts of resources. This explains why profitable, successful, well-run companies can simply run out of money — because they simply don’t have the cash flow to keep up. It goes without saying that a lower cost of capital bolsters the bottom line for all businesses. It is especially helpful to businesses that have naturally thin margins.
In addition, having the option to select from one, to all of your invoices, with up to 100% advance rate puts you in control of receiving the funds you need, when you need them. Accordingly, receivables finance has several benefits: it is non-debt financing, you have control over which invoices you choose to advance, and you can participate at rates significantly lower than those offered by factoring companies. In addition, you can manage your working capital and better position yourself for growth.
We are all looking for ways to improve ourselves and our lives. Our businesses should be no different. Business should always look for a financial solution and a financial partner that best positions them for success.
Sources:
https://www.invoicexcel.com/driving-growth-2019-banks-corporates-suppliers/
https://www.gfmag.com/magazine/february-2018/worlds-best-supply-chain-finance-providers-2018-winners
https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf
