How businesses can boost liquidity amid economic uncertainty

During an age of economic uncertainty, born from the repercussions of the COVID-19 pandemic and fuelled by the war in Ukraine, many businesses have been struggling for meaningful liquidity as the cost of goods and services soars. 

How can businesses boost liquidity amid these challenging economic times? We speak to the CEO and Founder of Accelerated Payments, Ian Duffy, who provides three ways businesses can improve their liquidity. 

As put by Duffy: “Maintaining healthy levels of liquidity is crucial for businesses of all stages, enabling them to navigate financial challenges, seize growth opportunities and ensure steady operations.

“Increasing liquidity and optimising cash flow is key for any growing business. The downsides of inaction have been made clear by 2023’s harsh macroeconomic landscape.”

Traditional bank loans can offer lower rates

An ever-present, reliable source of cash flow for businesses, high street banks are a go-to source for many SMEs, most of which already have accounts with their local branch. 

Duffy notes: “This option is ideal for companies with secure, long-term cash flow and a reasonably strong balance sheet/asset base. 

“Traditional bank financing provides access to various credit facilities, such as lines of credit and working capital loans, often tailored to meet the specific needs of a business but secured against the underlying net assets and cash flow of the company.

“Certain businesses that secure bank loans can access larger amounts of capital at interest rates closer to the base rate. This is ideal for refinancing existing debt or financing domestic expansions. 

“However, it's important to note that bank financing often requires a personal guarantee or collateral, such as real estate, equipment, or other assets, as security for the loan. Banks also typically conduct a thorough credit assessment to evaluate the borrower's financial health and creditworthiness. 

“This can lead to a lengthy and probing approval process, making bank loans an unattractive proposition for scaling businesses and emerging industries, but the right option for businesses with lots of working capital and high turnover.”

Paid lenders specialise in flexibility

An alternative to traditional venture funding and bank loans, paid lender sign-up processes negate the need for lengthy bank approval processes and rigid loan terms. 

“This allows businesses to scale up while retaining ownership,” says Duffy. “Loans of all sizes are available, and the repayment structure is usually designed to align with the business's cash flow, with fixed monthly payments over a specified period.

“Compared to traditional bank financing, paid loans often have faster approval processes and fewer collateral requirements. Lenders focus more on the business's potential and future revenue projections rather than relying solely on historical financial statements. 

“However, this often leads to higher interest rates which then increases the cost of borrowing for businesses. Nonetheless, paid lenders can be the right choice for businesses when added flexibility is a must.”

Unlocking cash flow with invoice financing

Lastly, Duffy suggests invoice financing as a means to help businesses release working capital otherwise tied up in outstanding invoices. 

He adds: “With funding available in as little as 24 hours of approval, companies can immediately allocate funds to cover operational expenses, invest in growth initiatives, and removes the risk of customers making late payments. 

“Invoice Finance is used by businesses around the world to help bridge the working capital gap that exists between delivered goods or services and payment. This enables fast access to funding without the need for a long-term contract. 

“Invoice Financing providers also designate invoices as collateral, removing the need to list company assets as security i.e., no personal guarantees required.

“Invoice Financing is available for invoices that have a value of £25,000 (US$32,000) to £5m (US$6.41m). If your business’s annual turnover is over £250,000 (US$320,000), invoice financing is an excellent way to protect and optimise your cash flow. 

“Buyers/debtors within the majority of the OECD countries are supported, making invoice financing a great tool for businesses that export or have subsidiaries in another country whose businesses may have long settlement periods.”