By Andrew Farnhill, Business Development Advisor at LiquidX, based in London
The market has shifted and a ‘new normal’ has been established. The weight of higher interest rates and risk premium has been bearing down on all sizes of customers, impacted by a wide variety of factors – high energy prices, the rising costs of finance, inflation – the economic environment across the globe is changing, leading to new asset allocations, lending practices and funding costs.
Prices are increasing across the board. The largest corporates still have access to somewhat advantageously priced bank facilities, but mid and smaller-market customers are facing particularly adverse pricing dynamics and poorer advance ratios under more stringent general facilities. They face an uphill, intimidating struggle as they consider how to reposition themselves in the newly-evolving market.
All businesses are recognizing the need to be more efficient with their cash with the increasing costs of capital, shifting focus to working capital efficiency and how to best access cash invested in the business instead of relying on credit, debt or borrowing.
Your Working Capital Can Work for You
Corporates can use trade finance techniques in lieu of secured direct lending. Unlocking cash in working capital cycles includes techniques such as reducing inventory, but supply chain disruption has caused inventories to increase, adding further burden to companies’ balance sheets.
Alternatives include accelerating receivables. Collecting payments faster helps bring immediate liquidity into the business, accelerating cash flow, improving reserves and company resilience. Additionally, it can be structured for beneficial treatment by achieving off balance-sheet status. In certain circumstances, receivables financing can also facilitate new sales where the customer’s buyers have reached purchasing limits.
There are other ancillary benefits. The required focus on the sales ledger, customer & debt management required to facilitate a correctly-structured solution leads to prioritization of collections management – ensuring continuity of an important source of funding relies on partnerships between the ‘borrowing’ customer, the funder and the technology provider supporting the management of the portfolio. This focus can help foster improved relationships with the seller and their own customers by improving data, reducing miscommunication and providing early warning signs of customers in distress. However, a scalable platform is required to manage transactions in large volumes.
As advantageous as it is to accelerate receivables, it is not a simple band-aid. The solution can be complex and requires structuring expertise to be performed efficiently and meet desired results. Without expert input, the potential advantage of tapping into valuable cash flow assets can become instead a mess of unorganized invoices, disgruntled customers, operational confusion and reduced funding opportunity.
Expert Guidance is Needed
Accessing the right structuring expertise and strong funders can help build resilience against unstructured credit and rate rises. Customers will be able to make the most of existing, fundable assets whilst removing reliance on structured, potentially expensive debt during these turbulent times. You will need to partner with the experts who know how to structure and capitalize receivables solutions.
Managing large portfolios of debtors, insurance, huge volumes of invoices and customer relationships can be extremely challenging. Identifying the right funding partner and allocating particular business lines to specific funders compounds the problem. Multi-jurisdictional legal requirements and cashflow complexities must be addressed with expertise and legal support.
LiquidX has the structuring expertise, asset distribution technology and funder network necessary for success. Our fintech solutions, led by our pioneering InBlock technology platform, digitize and automate trade assets across their entire life cycle. Corporates and funders gain the flexibility to transact across multiple financial structures directly or within a multi-bank network. Our platform brings together scalability, insurance & funding in a single platform.
Partnering with LiquidX
Having access to experts, resources and technology, connecting your supply chain seamlessly, can make all the difference when trying to access your working capital. LiquidX’s platform provides these tools, granting access to buyers, suppliers, and financial institutions in one place.