Business Financing for Late Payments

Posted by Vihang Patel on Jan 11, 2018 2:46:00 PM
Vihang Patel


Business Financing for Late Payments

The sad fact is that Singapore lags behind most other regions in terms of working capital performance. In 2016 alone, based on data from PriceWaterhouseCoopers, businesses’ cash on hand fell by 26% year on year. This means that S$2.4B of additional cash was tied up because of inefficiencies in how businesses, especially small businesses, failed to optimize the way they manage their cash flow.

To understand how small businesses in Singapore fall into this situation, consider the following:

Business Financing for Late Payments

Cash Conversion Cycle (CCC) = DSO (Days sales outstanding) + DIO (Days inventories on hand) – DPO (Days payables outstanding)

The key problem facing many small and medium enterprises (SMEs) in the B2B space is their Days Sales Outstanding, or DSOs. This happens because businesses further up the value chain (e.g. the customer of your business and so on) fail to pay their invoices on-time. This leads to a cascading effect in terms of late payment – if the first one in the chain delays by 10 days, and the next one down the chain delays by a further 10 days, and then by the time your customer is to pay you, there is a good chance that they will also delay their payment to you.

So how can you escape this trap?

Invoice financing for SMEs is a solution. But the trouble is, not many SMEs understand how to use debt effectively. Many SMEs simply take an SME business loan from a bank for a short-term problem like the Cash Gap problem explained above. An SME loan will require monthly repayments over a multi-year period. So essentially, you’re using a long-term solution to try to solve a short-term problem. SME loans do not take into account the fluctuations in business, leading to companies being more cash-strapped than ever because of the monthly repayments they have to meet.

There is a simpler way.

If you know that there is a cash gap of between S$50,000 – S$100,000 every month that varies for your business, and have all the basic accounting data already in your financial accounting software like Xero, simply connect with Finaxar’s app to get started to hassle-free, short-term financing for your cash flow issues at fair interest rates without any hidden fees!