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How Machine Learning Can Ease Onboarding for Working Capital Programs

by LiquidX

In today’s dynamic business landscape, maintaining a steady flow of working capital and liquidity is crucial for businesses of all sizes. The lifeblood of any business, working capital represents the difference between a company’s current assets and its current liabilities. It is the fuel that enables businesses to meet their short-term obligations, such as inventory purchases, employee payroll, and operating expenses.

Working capital programs are designed to provide businesses with access to the funds they need to operate efficiently and effectively. These pivotal programs offer a variety of financing options, tailored to specific business needs and financial situations, ultimately impacting success. By streamlining the onboarding process, leveraging technology, and offering tailored financing solutions, working capital providers are playing an increasingly crucial role in fueling business growth and economic prosperity.

The Significance of Working Capital Programs

A 2023 study by PYMNTS Intelligence revealed the crucial role of efficient cash management in boosting middle-market companies’ growth. The research found that 70% of firms using efficient cash management solutions experienced improved business metrics. Notably, top-performing growth companies achieved an average annual savings of $3.3 million in accounts payables (AP), reduced their days payable outstanding (DPO) by five days, and improved their cash conversion cycles. 

Working capital programs offering key benefits including:

  1. Enhanced Liquidity: Working capital programs provide businesses with access to the funds they need to meet their short-term obligations, ensuring they can operate smoothly and without disruptions.
  2. Improved Cash Flow Management: Effective working capital management enables businesses to optimize their cash flow, ensuring they have the financial resources to cover expenses, invest in growth opportunities, and maintain financial stability.
  3. Accelerated Growth: With access to adequate working capital, businesses can pursue growth strategies, expand their operations, and explore new market opportunities.
  4. Strengthened Financial Resilience: Working capital programs can help businesses weather economic downturns and unforeseen challenges by providing a financial safety net.
  5. Enhanced Business Agility: Access to working capital empowers businesses to respond quickly to market changes, seize emerging opportunities, and adapt to evolving customer demands.

Unveiling the Working Capital Program Process

A well-defined working capital program plays a crucial role in ensuring a company’s smooth operation and financial health. It optimizes the management of current assets and liabilities, enabling efficient cash flow and supporting business growth. There are several key steps involved in the working capital program process, including:

  1. Initial Inquiry: The process begins with an initial inquiry from a business seeking working capital financing. During this stage, the business provides basic information about its operations, financial health, and working capital needs.
  2. Application and Documentation: Based on the initial inquiry, the business may be invited to submit a formal application. This application typically requires detailed financial documentation, such as balance sheets, income statements, and cash flow statements.
  3. Assessment and Credit Evaluation: Upon receiving the application and documentation, the working capital provider conducts a thorough assessment of the business’s financial health, creditworthiness, and repayment capacity. This evaluation involves analyzing various factors, including the business’s financial ratios, industry trends, and market conditions.
  4. Approval and Funding: If the business meets the provider’s criteria, the application is approved, and the working capital financing is provided. The funding may be structured in various forms, such as lines of credit, invoice financing, or factoring.
  5. Ongoing Monitoring and Communication: Throughout the working capital program, the provider closely monitors the business’s financial performance and maintains open communication to ensure the financing is utilized effectively.
  6. Repayment and Term Completion: The business repays the working capital financing according to the agreed-upon terms, typically within a specified timeframe. Upon successful repayment, the working capital program is considered complete.

The traditional onboarding process for working capital programs can be lengthy and complex, however, often requiring businesses to provide a significant amount of documentation and financial information. This can be a major barrier for businesses, especially small and medium-sized enterprises (SMEs), who may not have the resources or time to complete the onboarding process. According to a 2023 report by McKinsey, “Organizations that have successfully optimized net working capital have first established supportive governance, processes, and technologies to make this a priority throughout the business.”

LiquidX Digitization Revolutionizes AR and SCF Programs for Working Capital

While familiar and seemingly reassuring, traditional working capital management processes, dominant for many years, are now outdated, expensive, prone to errors, and increasingly cumbersome to manage effectively. The Institute of Finance and Management found that a staggering 39% of businesses incur processing costs exceeding $6 per invoice. This stark reality underscores the urgent need for modern solutions to optimize working capital management.

Today, advancements in technology, such as data analytics and machine learning, are transforming the working capital landscape, enabling faster and more accurate assessments of business creditworthiness. LiquidX has emerged as a transformative force, leveraging digitization to revolutionize accounts receivable (AR) and supply chain finance (SCF) programs.

Enhancing AR Efficiency with Automation

Accounts receivable management can be a cumbersome and time-consuming process for businesses, often involving manual data entry, reconciliation, and collections. LiquidX’s digitization streamlines AR processes by automating tasks such as invoice generation, payment processing, and collections management. This automation reduces errors, improves efficiency, and frees up staff to focus on strategic initiatives.

Optimizing SCF with Data-Driven Insights

Supply chain finance (SCF) programs can be complex and opaque, often lacking real-time data and insights. LiquidX’s digitization transforms SCF by providing a centralized platform for all parties involved in the supply chain, including buyers, suppliers, and financiers. This platform provides real-time visibility into transactions, payment schedules, and risk assessments, enabling all parties to make informed decisions and optimize their working capital.

The Impact of LiquidX Digitization

The digitization efforts undertaken by LiquidX have a profound impact on the world of working capital:

  • Increased Efficiency: Automation and streamlined processes reduce manual effort and improve operational efficiency.
  • Enhanced Accessibility: Access to working capital is expanded to a wider range of businesses, including those with limited traditional collateral.
  • Improved Risk Management: Data-driven insights and analytics enable better risk assessment and decision-making.
  • Reduced Costs: Digitization reduces costs associated with manual processes and transaction fees.
  • Accelerated Growth: Businesses gain access to the working capital they need to fuel growth and expansion.

LiquidX’s digitization of working capital programs represents a paradigm shift in the financial industry. By leveraging technology to streamline processes, expand access, and enhance risk management, LiquidX is empowering businesses of all sizes to achieve their financial goals and drive economic growth. As digitization continues to evolve, LiquidX is poised to remain at the forefront of innovation, shaping the future of working capital solutions. To learn more about our industry-leading, end-to-end digitization using the most advanced tech available today, request a demo or contact us.