Dear Brokers: Here's how to solve your client’s cash gaps

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The last decade has seen something of a revolution in the Fintech space. More reliable and widespread connectivity, together with increased trust of online financial institutions, has exponentially increased the options available to brokers and their clients beyond the traditional bricks and mortar lenders. One of these new options can be found in the range of business-focused ‘buy now pay later’ products. The model has been popular with consumers for years, but the potential to reinvent business finance is only now being realised.

As a broker you’ve likely seen what we have - too many growing companies struggling with crippling cash flow gaps. From the outside it looks like business is booming, with more deals being done and new staff being hired. But the balance sheet tells a different story. As companies take on new and bigger clients, invoices grow. Bigger customers can demand longer settlements, but the company can’t always negotiate longer settlements with its own suppliers. As a result, working capital is non-existent which means turning away valuable business and an end to any forward momentum.

Banks can’t help, as they won’t lend against growth. In any case, indiscriminate borrowing is probably the wrong approach. The risk to an SME’s financials isn’t worth taking on excess debt to cover transactional problems; that’d be like hitting a nail with a sledgehammer. An alternative exists in the aforementioned buy now pay later products. In the same way the model has redefined consumer spending, business-focused offerings help plug the gaps between supplier and customer settlement.

For buyers, invoices are paid up front, after which they repay the funding provider over extended terms - typically 30, 60, or 90 days. This essentially inverts the process, so they get cash in before cash out. For suppliers, invoices are paid when they’re issued and the fintech takes on the debt over a given settlement period. This takes risk off the supplier’s books and stops them chasing debt, while their customer gains more flexibility with their purchases.

The model has far more potential than just paying invoices on time. One of our customers in the veterinary industry used the product to take advantage of a supplier’s early payment discount. This covered the cost of the facility, effectively fixing their cash flow gap at zero net cost. Meanwhile, a major automotive reseller actively marketed the service to its customers, who can now buy more under extended payment terms. Customer loyalty and demand rose immediately, while the business was able to keep more product on its shelves. As a result of more flexibility and faster fulfillment, the company gained an unparalleled competitive advantage. Closing the loop of invoice payment also simplifies accounts receivable and avoids burdensome administration, which has caused too many exciting companies to stumble. Allowing an external platform to take on customer credit risk is also a major benefit, especially for unknown clients.

As a broker, you’re likely already familiar with this. However, the importance of alternative lending products like these can’t be stressed enough. In a post-royal commission world, there’s a new imperative for brokers to be proving their allegiance to the client. While simply offering a range of new services will increase your credibility, matching a product designed to solve your client’s exact challenges is the best way to truly inspire confidence when trust is at an all time low. Buy now pay later products are just another powerful and flexible tool to add to your belt to unlock that trust once again.

27 August 2019