Did you know that unpaid accounts receivables are more than just an inconvenience for your business? When you get paid late by a customer, a lot of variables in your business operations get affected. If not checked in time, a one-off late payment can become a monthly process which may eventually lead to loss of new business.
While our proposition may sound dramatic to you, the argument is not without its merits. Every business is dependent on income from sales of its goods and services. Businesses with commercial customers are even more dependent on the income from sales because their client base is often limited or niche. So, getting paid on time matters for keeping the working capital fund afloat and having enough raw materials and ready stock for new orders and shipping.
Having a limited customer base also means that new business opportunities are of high-value, since most existing business is already locked in with contracts in the supply chain. In this scenario, having your income i.e. accounts receivables stuck in late payments or extended clearance cycles can make you lose on new business opportunities.
For example, you are a supplier/vendor to ‘Company A’. Your agreement stipulates that the payment for goods delivered will be cleared after 45 days. Which is the time ‘Company A’ requires to do inventory and quality checks. Now, say that there is a 10-15 days delay in the process which has been normalized over time. Now you are looking at a 60 days payment cycle while delivering goods every month. Eventually, this will force you to make cuts and place checks here and there on internal spending to meet the monthly targets. While this relationship with one or two commercial partners may work with these adjustments – the more growth opportunities you will get the more it will strain your financial resources. There will come a time when the extended invoice clearance cycle will not allow you to take on new business.
Getting your business back on track with Supply Chain Finance
The first thing to do is to have new strategies in place so that invoicing stops threatening your business. Make sure that procedures are followed on both sides. You can use provisions like discounts for early payments and penalties for late payments to incentivise your customers.
If your approach is not working with a client or there are implementation issues in the process, suggest an alternate route like supply chain finance.
What is Supply Chain Finance?
Supply chain finance is a new way of raising business capital for small and medium enterprises. You can raise finance from a non-banking financial company by working in collaboration with your commercial buyers. Transactions under supply chain finance are done in multiple domains, such as extending your buyer’s accounts payable terms, inventory finance and invoice discounting.
In this particular scenario, invoice discounting is what you will need to get your finances in order. Invoice discounting allows you to raise money by collateralizing your outstanding invoices/bills of sale. You can contact an invoice discounting company such as LivFin to setup an early payment cycle for all your cleared invoices. In turn, the invoice financier will charge you a processing fee and some interest on the amount advanced. This can be seen as a very short-term business loan which is payable in full on the collateralized invoice’s due date.
How can Invoice Discounting help your business?
Now you may be asking, what would you gain by paying processing charges and interest on an amount which is already owed to you by the buyer?
Well, the thing is, invoice discounting is not a one-time deal, where you collateralize a single invoice, get paid for it early and move on. It is a financial system for supporting the supply chain. So, by working in partnership with an invoice discounting company, you are effectively getting ‘paid early’ for all your future invoices.
The collective benefits of having all that cash available to you when you need it the most far outweighs the negligible processing charges and interest you will be paying to the invoice discounting company. Also, invoice finance has several key benefits in contrast to normal small business loans.
- Invoice finance does not require a stellar credit score because it is secured by accounts receivables.
- Invoice finance offers flexible repayment terms with a tenure of 30 to 180 days and option of bullet payment with principal paid rear ended or structured monthly installments.
- There are no pre-closure charges for invoice finance, so if your customer decides to pay early, you can close the business loan account early at no extra cost.
- Lastly, invoice finance is available for diversified supply chains and hence offers a more wider industry coverage than a small business loan.
So, are you ready for a change in how your business handles its accounts receivables and turn a regular inconvenience into an advantage? If you are, drop us a mail at firstname.lastname@example.org to sign up for invoice discounting. To know more about Supply Chain Finance and invoice discounting, visit our website https://livfin.com/.