Governments around the world are taking extreme measures to slow the spread of the coronavirus pandemic, forcing many businesses to temporarily shut down, and keeping consumers at home as much as possible. While many businesses have been able to continue operating by allowing employees to work from home, many face significant revenue shortfalls in the short term. Following an emergency $17 billion stimulus package, the government is now working to release a second-round stimulus package to buy time to businesses, and provide them with the means to recover after the crisis ends. In the short term, however, businesses need immediate financial support to help them avoid operational interruptions as much as possible.
To get the liquidity they need, businesses are turning to supply chain and invoice finance as a cash flow solution. These allow businesses to quickly and easily access funds, without taking on any additional liabilities. In this way, companies can minimise the impacts of cash flow interruptions, ensuring that they’re positioned as well as they can be to recover when the economy is allowed to return to business as usual.
Invoice finance is a critical credit-free emergency measure
Many businesses have lost access to their usual credit options due to the crisis. Falling stock values and shrinking revenues can quickly get in the way of a business’ ability to borrow. Moreover, banks are acutely aware of the situations that many businesses find themselves in. While governments are working to encourage banks to offer emergency loans to businesses, lenders have little incentive to do so. That’s because it’s still entirely unclear how long governments will maintain the economic shutdown, and businesses who borrow money today might well go bankrupt in one or two months. Until the shutdown has a clear end date, it’s impossible to project exactly how much support businesses will actually need.
In the near term, however, businesses are not without options. Invoice finance allows businesses to bring in outstanding revenues sooner. Rather than waiting for a client to pay, they can finance the outstanding invoice for cash up front. Those funds can then be used to deal with immediate shortfalls. In effect, this buys time for companies, allowing them to continue to operate without interruptions until the government’s financial support measures come through.
Accessibility is key
Invoice financing is of particular importance because of how easy it is to access, and how quickly it allows businesses to get their hands on the cash they need. Often, the financier will be able to issue the initial payment for a financed invoice within just a few hours. Better yet, there’s no need for credit checks, because it’s not a loan. Because the financial institution holds the invoice it needs no security, and simply collects payment from the customer when the invoice is due.
Supply chain finance provides businesses with short term growth capital
During and after the coronavirus crisis, businesses can expect to find themselves out of pocket at inconvenient times. That’s particularly problematic when it comes time to seize a growth opportunity, or to begin to drive growth as a way to recover. A great way to deal with this is to make use of Fifo Capital’s supply chain finance facility.
Supply chain finance is primarily a way for businesses to defer outgoing payments. For example, a business dealing with an unexpected cost could use supply chain finance to defer a supplier payment, so that it can redirect existing working capital to deal with the problem. However, it can also be strategically applied to finance short term growth. A business lacking growth capital can use supply chain finance to cover supply costs, provided that it can convert those supplies into revenue before the deferred payment date.
For example, a retailer could use supply chain finance to purchase stock from a supplier. Then, when the supplier issues the invoice, the business can defer payment by up to 90 days. Provided that the supplies are received, processed, and sold before that deadline, the business will be able to use the revenues earned from those sales to pay for the initial supply shipment. This allows even businesses with very limited access to capital to boost revenues during a difficult time, and to begin to recover.
Alternative finance tools like this provide businesses with critical financial options when traditional lenders and investors are out of reach. When it comes to managing the fallout of the coronavirus pandemic, they will play an indispensable role in getting people back to work, and getting businesses running normally again.