Tag Archives: Sanjeev Chhugani; Working Capital; small business financing; financial technology; commercial finance; alternative financing

3 Things Help You Figure Out If You Really Need Business Finance

1 Apr

“Never a borrower be”, I used to hear growing up. Generations have been wary of debt and lenders.  Yet, ships were launched by risk taking financiers and global trade allows us to call on phones built 3 continents away.

Finance helps businesses bridge reality to ambition. Public listings, venture capital, private equity, angel investors and now crowdfunding can help businesses find the right equity investors. On the debt front, some needs are better filled by your bank or a commercial lender. Other needs can be easily dealt with by short term online finance. Whatever your situation, its worth checking out what is available, as different options will be suitable for you at different stages of your business.

Have an order you want to fulfil, but cant find the right funding at the right price? Or need to simply fill a cashflow gap because your large customer wont pay you for another 30 days?

Different businesses we talk to, meet their needs differently. Some simply ‘stop needing’ and find a way to manage, whereas others tap different external sources. Whether you choose to simplify your commercial lender conversations through Bilbus, take an early payment discount, or even try out a peer to peer loan, it’s important to have a handle on your finances.

imageWhether speaking to a lender, or simply strategizing with your advisor/accountant, understanding and being able to concisely articulate 3 pieces of information will keep you on top of the situation:

Cashflow Visibility Over the Next 12 Months

· What’s coming in, what’s going out, and when are you likely to need help outside the natural flow of your business?

· Which customers sit on your cash the longest and need the most following up?

· How dependent on a particular customer paying you by a certain date is your business? What happens if they delay?

Business Viability

· If you continued as you are now, without investing anything further into your operations, marketing or people, would your business stay the same in 12 months?

· Do you compete on price or service? Are customers forcing you to do more for less?

Prospects For Growth / The Path Ahead

· If you had more money, what would you do with it?

· Invest in production or marketing to grow?

· Expand to new markets or products?

· Move to new offices, build a better factory/showroom, purchase new equipment?

· Hire more (better) people?

 

Having asked and answered these questions honestly helps business owners understand whether you need finance at all, and if so, what you will do with it. Once you’ve figured out what you need and why, the next step is to find it and convince someone that you’re good for it.

Different sources of funding have different costs, use cases, and information needs. The clarity and visibility of being on top of one’s finances helps with the next step: preparing the story / business case to make sure you find the right financing at the right cost.

 

Bilbus is a cloud based cashflow hub – connecting to accounting platforms, Bilbus helps businesses manage invoicing and collections, forecast cash flow and when finance is needed, arrange commercial funding. A single cash hub to view and manage receivables, payables and borrowings.

 

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Who’s In Charge of Cash Flow?

3 Jul

It’s always interesting to speak to business owners about their cash flow. I was at a launch in the technology eco-system this week and was chatting with 3 owners of fast growing businesses. I asked them what were the two biggest issues that weighed on their mind that week. The responses all had 2 things in common: sales and cash. I asked who was responsible for generating revenue. Sales & marketing, the CEO, the entire team were the general consensus.

“So who’s problem is cash flow?” I asked. All said it was them. “Who sends your invoices and chases collections”? was my follow up. “Our accountant handles all that” were 2 out of 3 responses. The third was “my finance person does that. I get a report every day/week”.

I watch their body language as I continue, their eyes widening and leaning in slightly forward as I describe how a tablet, laptop or phone can give them a window into their cash flow through Bilbus. Advance notice of the ‘iceberg’ ahead  as a major customer decides to delay payment to smoothen out its end of quarter cash balance.

No cash, no payroll, PR or popping corks!

Too many businesses wait to the last minute to do something about their cash flow. “I know we need it, but I have so many other things to do”, responded one of the owners. “I’ve been sitting on a tax form that will see me refunded thousands of pounds and I never seem to get around to it”, added another.

I know what they are going through. I’ve been there. There are so many things to deal with that the boring details of invoicing, payments, form filling, applying for funding all can be left to someone else or put off for another day.

Customer acquisition and sales is always a key for us.

But I’ve also been beyond. I’ve sat in my bank relationship manager’s office begging for cash to make Friday payroll and purchase stock for the weekend. I’ve scrambled around at the last minute to chase up other customers whose invoices are not due yet in the vain hope that they will pay early and give me some short term relief while a cheque waited to clear.

In those days, I was the sales guy, accountant, payments clerk, punching bag and in-house IT. As time went by, I began to outsource. First went tax, then bookkeeping, then marketing, payments clerk and IT. But even though someone else was responsible for delivering an invoice, I always checked each one. And every payment above a certain amount went through me. Even when we outsourced the finance function, I wanted to know what was in the bank, what was coming in and who owed me money. One of my best friends, who was ran a small foam and plastics business spent 50% of his week calling on his customers to chase up his invoices.

Bilbus was built to give a business control of cash.

No matter who actually handles invoicing, collections and payments. More and more accounting firms are offering outsourced “virtual” finance team services and taking over invoicing, reconciliation and even strategic forecasting. But as strategic advisors, they recognise that business owners need to be intimately aware of their cash. They want their clients to be better equipped to make informed decisions, and plan ahead for the ‘iceberg’.

Before they can do something to solve a cash flow gap, businesses need to know where their cash is (and will be). And then promptly act to navigate around the gap before it is reached.

Captains of their own cash flow.

Bilbus is a working capital financing hub that helps small businesses invoice, collect and match to commercial lenders via a single dashboard. Businesses use Bilbus to automate invoicing and collections,  increase cash flow visibility and strengthen credit applications. Get paid faster, borrow smarter: e-Financing for the e-Invoicing generation.

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Connecting To Cash: Keys To Unlock Working Capital

20 Jun

Life as an entrepreneur trying to reshape commercial lending is far from boring. Trying to understand what will make commercial lenders finance a business. Figuring out why a business waits until they have a critical cash need before acting.

puzzleOr for that matter, what about their previous lending experience discouraged the businesses from talking to a bank. Is a private loan from a P2P what businesses are really looking for, or is it that commercial lending channels just seem too hard? What would a business have to have gone through to be attracted to selling its invoice on auction to the highest bidder?

As business, we tend to grapple with some common questions thinking working capital and financing:

  • “How can I confirm I will be paid, and when will I get paid?
  • Will I jeopardize my customer relationships?;
  • Am I building on-going commercial relationships that help me expand?
  • What funding does my current situation allow?; 
  • Am I talking to the right lenders?; and
  • What are my choices ?”

So far, I think commercial financiers still have the best shot at making the cash flow. Businesses that are waiting to get paid, or looking for cash to fill a big order. These businesses are the ones that Bilbus is best able to help either get paid faster, or borrow smarter.

During the credit flood, bank lending crowded out invoice finance. As one mid-size US banker put it, “ its easier for us to give the business a secured loan than to do all the work needed in an invoice financing”.  Today, with wholesale funding markets (what allowed banks to lend cheaply) contracting, invoice finance’s 300 year+ simplicity will be what makes SMB cash flow. Or that’s what I believe.

As corporates take longer and longer to pay suppliers, the risk is that the suppliers will be unable to sustain supply, or even worse, go out of business. Enter Supply Chain Finance (SCF) which has traditionally been set up by the corporate in partnership with a bank.

The bank would lend to the supplier based on an invoice approved by the corporate, thus making it easier for the SMB supplier to obtain credit based on the borrowing capacity of the borrower.

Unfortunately, credit capacity is a big hurdle post 2008 and many large corporates have found banks less willing to set up inexpensive conventional SCF programmes for them.

In addition to the corporates own borrowing capacity, banks are also concerned with concentration risk (effectively, a bank cannot place more than a percentage of its overall lending with any one customer). Combining this with the work needed to set up a conventional SCF programme, take up has been lower than the industry envisaged. That is changing, with e-invoicing.

SCF, in its broader sense, does not have to be buyer-driven. If the buyer’s (corporate) balance sheets are stretched, or the lender has concentration risk concerns, the lender focuses on whether the borrower (SMB) is able to service the debt by looking mainly at two factors:

  • How this business is performing overall and whether it has the right level of sales and collections to sustain its obligations/grow (this is where the invoice approved by the buyer and the sustainability of the supply relationship between the buyer and borrower becomes the primary concern; and
  • In the event that this business defaults, whether the business has any other assets / collateral to cover the debt, or will the receivables balance be the sole means of repayment The lender has to take a view that the corporate will pay the invoice at the due date, else for businesses that do not have extensive collateral, the chances of securing credit are low.

A recent white paper co-authored by Bilbus summarises the opportunity to make commercial lending and borrowing easier by using e-invoice data.

Many businesses may not wish (or be offered) to pursue buyer driven financing – a collaboration between invoice providers and working capital platforms/hubs could be the solution. Today, given the propensity of open account trading, domestic and export businesses can make use of the working capital hub.

e-Invoicing allows businesses to get paid faster, track their receivables status and work out when they will need cash, and strengthen their credit case.

In the UK, the e-Invoice Advocacy Group is currently engaging the public and private sectors on the benefits of e-invoicing, a major one being liquidity and access to finance.

e-Invoicing may in deed be the key to unlocking supplier (SMB) working capital. And the locksmiths that design these keys will be supply chain financing partners and the working capital hubs (that’s Bilbus!) who combine simplicity and financial choice with SMB focused functionality.

A copy of the white paper published by Bilbus  can be downloaded from the Bilbus site.

Bilbus is a working capital financing hub that helps small businesses invoice, collect and match to commercial lenders via a single dashboard. We help businesses use invoicing and collections data to increase cash flow visibility and strengthen credit applications. Get paid faster, borrow smarter: e-Financing for the e-Invoicing generation.

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