Small to medium business owners have had to deal with multiple rate rises, increasingly cash-strapped customers and a tightening global economy – and that’s just in the past two years. With so much uncertainty around the future of our economy, it makes sense why SMEs are looking at alternative financial strategies to stay afloat. Could payables finance be the best tool for managing cash flow and business stability?
After more than a decade of post-GFC bliss, business owners have had to grapple with a number of economic challenges recently, not least of which the RBA’s decision to jack up the cash rate on a number of occasions. While thankfully there haven’t been any further rate hikes in 2024, SMEs are tightening their belts as customers rein in their own spending habits.
“The credit environment in general is tightening up,” says Mark Occhiuto, Director at Fifo Capital. “Being a non-bank, we’re expecting to speak to a lot more clients because the more traditional lenders have really tightened how they do things.”
He adds that while the interest rates seem to have stabilised for the time being, the market outlook remains uncertain, with economists divided on whether rates will go up again in late 2024 or perhaps begin to fall. Such all-encompassing uncertainty has made many business owners cautious about taking on new debt or expanding their operations, waiting for more stability before jumping into new opportunities.
“We’re finding a lot of clients are wary of taking on more debt. They have projects in the pipeline, but they’re hesitant to move forward without more certainty on where interest rates are heading,” Occhiuto explains, adding that businesses don’t want to be caught off-guard by further rate hikes that could hamstring their cash flow.
Despite all of these economic hurdles, owners have started to recognise a diamond in the rough: payables finance. Unlike traditional financing strategies, payables finance helps businesses pay their suppliers without putting a strain on cash reserves or taking on additional debt.
“A lot of businesses are bringing forward their trading terms because they are feeling cash flow pressure on their end,” Occhiuto says. “Whereas previously a supplier may have given you 30-day terms, now it’s much shorter, which adds stress on your end. Payables finance can alleviate that stress because it substitutes the supplier pulling in their terms by you getting terms from a financier instead.”
Payables finance works by getting a third-party financier to pay a business’s suppliers on their behalf. The business then repays the financier over an extended period, depending on the arrangement. This extra window of time gives SMEs the liquidity they need to continue operating. It also means you can maintain good relationships with your suppliers, which can be a game-changer for businesses dealing with cash flow woes.
One of the biggest advantages of payables finance is how it can help you avoid opportunity cost. In a volatile economic environment such as we’re in right now, SMEs are being more careful about weighing the costs and benefits of every financial decision. But with payables finance at your disposal, you can start seizing opportunities you might have otherwise passed up due to financial constraints.
“It’s actually quite surprising how often entrepreneurs and even seasoned business owners miss this point,” Occhiuto says. “While yes, a facility like payables finance might eat into your gross profit margin, without it you wouldn’t have been able to take that opportunity in the first place.”
“Say you’re an importer who doesn’t have the immediate capital to take on a new distribution channel – one that can deliver a solid gross profit margin. With payables finance, you can get your cash flow on track and take that opportunity – making a little less on something you wouldn’t have made a single dollar on without the facility.”
The challenges SMEs are facing today aren’t going away anytime soon, and indeed there will be further hurdles in a recovering economy. But alternatives like payables finance can be an incredibly powerful tool to manage your cash flow and take advantage of growth opportunities.
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Fifo Capital empowers SMEs to optimise their working capital and put an end to cash flow problems. With Fifo’s award-winning finance solutions, you can access up to $2 million in revolving funds to supercharge growth. Beyond financing, Fifo’s expert team offers unwavering support, guiding you through common pain points such as late payments, rising inventory costs, overheads, and sales fluctuations. Take the strategic leap into sustainable finance and break free from the trap of quick fixes. Partner with Fifo to secure your business’s future. Do More. Win More. Grow More. With Fifo.
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