A healthy financial position is essential for any business, whether it is an established SME or a start-up. Financial flexibility, a key element in success, allows companies to trade with confidence and work towards goals with ease.

In the ever-changing economy, it is challenging to upkeep an adaptable business amongst the multitude of external factors such as late payments, unpredictable expenses and wider economic shocks, such as trade wars, that are often out of a business’ direct control.

Businesses, even those who have a strong sense of business acumen and acuity, can often risk failures when they do not emphasise their financial flexibility.

Why raise borrowings before the business needs it?

Apart from realistically forecasting cash flow, regularly updating the budget and reviewing expenditure, companies should always be on the lookout for alternative sources of credit to help prepare for times of crisis and financial unpredictability.

However, companies need to note that a sub-optimal financing facility can be detrimental to them. It is always a good idea to regularly re-evaluate funding alternatives to ensure that it is providing the business adequate support. Failing to steer the business towards the right financing solutions to support its needs can cause it to miss out on significant benefits.
As companies grow and evolve, it is vital to regularly explore alternative financing options against benchmark funding facilities, keeping in mind that the “most optimal” financing options for the business will change throughout its life cycle.

What are the benefits to optimising financing solutions?

A. Build credit history

It is important for companies to build trustworthy relationships with lenders. Enhance credit ratings by engaging in capital raising activities so as to develop a track record of repaying debts on time. This helps to establish creditworthiness, making it easier for the company to secure more substantial funding in times of need.

B. Better cash flow

Regularly exploring alternative funding solutions can further enhance business cash flow. It allows companies to find capital-generating channels, ensuring that not only day-to-day operational costs are met, but also to take advantage of new opportunities and incentives as they come, thereby improving the business’ bottom line.

C. Increased flexibility

For growing businesses or those with seasonal trading patterns, naturally rigid funding facilities such as loans and overdrafts can be restricting and hugely frustrating. A flexible funding option is key for businesses to adapt in a fluid, knowledge-based economy and fluctuating demands, allowing the company to scale funding accordingly when other funding solutions are not possible.

-       Asset-based financing solutions allow for a constant cash flow despite large capital expenditures.

-       Invoice financing or factoring solutions improve cash conversion cycles by releasing funds against unpaid invoices.

D. Additional services

Some funding facilities offer additional services that can significantly reduce in-house overheads and improve credit control efficiency. Examples of these services include web portal systems for easy submission of documents or real-time monitoring of outstanding funds. These curated services help companies reduce inefficiencies and allow them to focus time and efforts on core management aspects that improve the business.

E. Saves time, not just money

It is important for companies to evaluate if the value of the funding option outweighs the cost, where value includes service quality and the impact on business opportunities. Low cost should not be the only factor to consider when choosing the right funding option as it does not necessarily translate to quality.

F. Gain an edge over competitors

In order to be successful, businesses have to gain a competitive advantage either through innovation, differentiation or price competition. An optimised funding framework can also help the company urge ahead in the pursuit of long-term success.

With technological breakthroughs lowering the costs of harnessing technology, FinTech has begun to transform the lending market and will greatly influence the business operating environment. With an increased in start-up lenders, existing lenders have diversified into more advanced solutions, and even well-established financial institutions are evolving to cater to these changes. Businesses should stay up to date with the best financing solutions that FinTech has to offer and reap its benefits.

How do business owners go about it?

It is advantageous to choose a lender that is aligned with what the business needs such as business’ financial objectives, time horizons and risk appetites. It should have experience operating in the respective sectors. Other factors to consider are the type of service, whether hands-on or a backseat approach, and the use of different systems and technologies. For example, companies can save valuable time by choosing a new funding provider that offers more advanced customer relationship management systems.

FinTech has significantly helped businesses by reducing information irregularities and mitigates risks. It is driving improvements in traditional financial services, disrupting the industry by constantly innovating new products and services.

When used judiciously together with capital raising activities, debt financing can be sustained during economic downturns. A healthy cash flow is crucial to success. Businesses should take advantage of FinTech’s ability to promote efficient allocation of resources, ensuring that the financial aspects of the business are optimised to allow for goals attainment.

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