3 tech keys to unlock cash flow issues

IT is that time of the year for well wishes and good cheer. But for some of Singapore's small and medium-sized enterprises (SMEs), it may also be a time to reflect on finances - what worked well, what didn't, and what other options are out there to ease business growing pains in the new year.

The financial difficulties faced by Singapore's SMEs have been widely talked about last year. In Spring Singapore's SME Financing survey released recently, delays in customer payments were cited as the top challenge expected for 2018.

Such delays not only damage cash flow management but affect productivity and staff morale. This is not surprising when you consider that it takes Singapore SMEs an average of five work weeks per year to chase up payments, according to research by Xero, the online accounting software for small businesses.

As no business can operate successfully without healthy cash flow, there's a need for SMEs to strengthen their capabilities to avoid the pitfalls of mismanagement.

The Spring Singapore survey points to "tech-enabled solutions" as a key way to do this. There are three choices that stand out for their ease and efficiency in aiding cash flow management.

Peer-to-peer lending

For some unprepared or unable to borrow from a financial institution, there is online debt financing between willing investors and promising businesses who agree on a suitable interest rate.

Take Funding Societies, a South-east Asia based platform set up by two Harvard MBA graduates. It uses its own credit-scoring model to assess the business's credit risk. As at December 2017, the platform has disbursed over S$100 million in loans, with an average default rate of 1.4 per cent.

What was once a maverick alternative to borrowing from banks has turned into a huge industry in itself with institutional sized lenders, like the banks. In a bid to be the regional fintech hub, Singapore has begun regulating P2P lending since 2016.

It has also given out the MAS FinTech Award to recognise the most credible players, of which Funding Societies is one.

With Singapore leading the way as a thriving fintech hub, P2P lending will pick up even further in the new year, enabling creditworthy businesses in need to match with legitimate investors.

Online invoice financing

The problem of SMEs struggling with late invoices isn't new but it has skyrocketed from 14 per cent in 2016 to 81 per cent in 2017 in Singapore, according to DP Info's SME Development survey, having dire consequences on cash flow.

Online invoice financing, or "factoring", converts outstanding invoices due within 90 days into immediate cash for the small business.

Tech start-ups across the globe allow SMEs to list their invoices on their platforms and these platforms can be accessed by a much-larger pool of investors, allowing SMEs to access funding faster, while opening-up opportunities for investors looking for non-traditional opportunities.

This is particularly useful for SMEs that do business with multinational corporations (MNCs) as the main credit risk lies with the payer, the MNCs. So there will be a noticeable uptick of factoring among these SMEs.

Cards and credit

One of the core issues we've found from our experience working with SMEs is that they often don't need huge sums for the long term. Rather, what they want is instant access to smaller amounts to, for instance, pay suppliers or even for office rentals.

Businesses can pay for large, recurring expenses such as rent, payroll or taxes using their existing credit cards, even if the recipient doesn't accept credit cards. In doing so, companies leverage the line of credit assigned on their card to extend their payables by up to 55 days, significantly improving short-term cash flow management.

Typically, such expenses are made by bank transfer, cash or even cheques - cards cannot be used because the landlord or merchant doesn't accept them. Meanwhile, a significant pre-approved line of credit on a company's credit card remains relatively underutilised.

With no cumbersome loan applications, collateral or onerous contract terms, such technologies are giving businesses access to immediate funds, saving much time and energy.

Epiphany

The time for SMEs struggling with cash flow issues, such as late payments and hours of manual work damaging productivity, will come to a head in 2018. As the Spring Singapore survey points out, tech-enabled solutions can help address common inefficiencies faced by SMEs through automation. Adopting such solutions can increase financial visibility and decrease reliance on external financing, leaving teams with more time to get on with what truly matters: growing the business.

These three options are a drop in the ocean of innovation but share in that they are easy, fast and already well on their way to helping many SMEs strengthen their cash flow management capabilities.

They are three gifts for business owners that are worth their weight in gold, frankincense and myrrh.