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The role of fintechs in financing SMEs during economic crisis


Cost of living crisis 

Not a day goes by that we don’t hear about the crushing impact that rising energy costs and soaring inflation rates are having on businesses. This is having a knock on effect on the ability for companies to pay creditors on a timely basis consequently increasing the working capital (or cash) needs of the business. If you’re a company wishing to expand internationally, you also have to contend with elongated supply chains and upfront import/export costs – not to mention the extra red tape associated with Brexit, trade wars with China – and the conflict in Ukraine. 

But even in a time of crisis, many entrepreneurs still see opportunities to expand their business and be ambitious about the future. They are continuing to scale and look for new markets to make their mark in the global business market. This perseverance is good for the economy and for society. The challenge then is ensuring the cost of living crisis does not stop companies achieving their global ambitions. 

When the going gets tough, internationally minded businesses should have somewhere to turn for help – but usually the best means of support are not in the places one expects.

Need a line of credit? Many firms will from habit turn to the government, banks, or credit unions for a helping hand. What the post-covid, post-Brexit era has made clear, however, is that traditional institutions are not the best equipped institutions to help growing companies scale during a crisis – let alone help in global trade. Banks – whether they like to or not – simply don’t have the risk appetite to offer financing cross boarder. This is where alternative finance companies can help. 

The rise of fintechs as a lifeline for businesses

What sets fintechs apart from banks is their ability to offer customised support to suit the financial demands of individual companies – and to do so quickly. They’ve got the tech, the agility and the genuine desire to help – their companies are exclusively focused on SME support and putting customers at the heart of their businesses. 

Fintechs also have flexibility to address the different requirements that companies have when it comes to financing – whether it’s a digital bank  offering instant loans in a matter of minutes or a crowdfunding, peer2peer lending platform, where the public is vetted and allowed to engage in micro IPOs for businesses in need of liquidity. 

But in times like this, crowdfunding and small loans aren’t enough to keep SMEs in business – especially those that are wishing to scale up. We seem to forget that some companies are still growing even in the midst of an economic crisis and they need help to navigate through the challenges that come with crisis -such as late invoice payments and upfront payments to meet terms of trade. 

This is why invoice financing has been critical during the post-Covid, post-Brexit world – and enjoying a boom in popularity among SMEs.

Invoice financing explained

With this route, businesses can secure immediate payment of invoices, which can be reinvested as quickly as possible – so companies have the liquidity to keep the show going – whether it’s paying their staff, their third-party suppliers or utility bills at the factory. 

Advancing finance against invoices enables enterprises to improve their cash flow as the cash can typically be available in as little as 24 hours after approval. 

Invoice financing also offers more generous payment terms to scaling borrowing. It is simpler to secure than other forms of funding, making it a fast and straightforward way for businesses to access funds immediately. It also does not matter how many customers the business has. In contrast, a common issue when small businesses apply to banks for credit is the concentration risk that comes with a smaller number of buyers. 

Unlike traditional debt factoring, the business pick how many and which invoices they wish to fund, giving them access to funds when they need it. This relieves growing businesses of the pressure to chase payments while providing almost immediate access to much-needed cash. 

The model works exceptionally well for smaller businesses serving industry giants. Usually, when dealing with industry giants, these firms might have to wait 60 to 90 days before invoice payment. If they decide to pursue traditional forms of finance in the meantime, this could take weeks with lengthy application and vetting processes. Invoice financing can take less than 48 hours. 

It is not just the speed and simplicity that make it a game-changer for growing businesses. 

Crucially, invoice financing means that companies can quickly expand the total capital available to them without impacting their ability to borrow or attract investment, as it does not affect their debt-to-equity ratio. 

This means that companies do not simply have to settle for resuming their operations but can also thrive and scale. Invoice financing means that they are free to simultaneously access credit or pursue traditional forms of investment to fuel further growth. While a tech firm might use invoice financing for their short-term scaling plans, they could also simultaneously pursue venture capital for longer-term growth. 

Surviving to thrive 

While scaling up can be a key innovation driver, it does not come without growing pains, which robust cash flow plays a significant role in alleviating. This is why invoice financing can be a critical tool in helping tech firms scale up in a post-Covid world, ensuring that they not only survive but go on to thrive.  

If there’s a disruption in the financing, fintechs are here to help. 

Ian Duffy is the CEO of Accelerated Payments, the invoice financing provider, with offices in London, Dublin and Toronto.

This article is part of a paid partnership with social impact media firm Ecology Media, which is running a special editorial series called A Better View to explore the ethical and diversity challenges that exist in the world of innovation – and the ways they can be fixed.

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