Lending FinTech – Managing Cash Flow Challenges



Lending FinTech – Managing Cash Flow Challenges

September 24, 2021

  • Account management
  • Biz2X
  • Cash flow

Starting and running a business is no easy task, and as we all know, cash flow is the primary driver of any business. A defined marker to identify a healthy and thriving business is a strong cash flow, and the importance of this particular resource is not lost on any entrepreneur.

by Mr. Vineet Tyagi, Global CTO, Biz2X

cash flow
Mr. Vineet Tyagi, Global CTO, Biz2X

They say the first five years are extremely crucial for any business and typically determine whether a business is going to collapse or float. The question here is why do various businesses that have a solid financial foundation and a good upfront investment end up failing within five years?

The answer to this is simply their cash flow, so much so that a recent study in the United States concluded that 82% of the time poor cash management ends up contributing to the failure of an SME.

To understand how SMEs can effectively manage their cash flow, let’s first take a look at the issues:

The cash management challenges faced by SMEs

  • Underestimation of start-up costs: Having unrealistic estimates and low cash reserves starts most SMEs off on the wrong foot. Getting capital and not calculating realistic costs becomes like quicksand – pretty hard to get out.
  • Receivables management: Accounts receivable, as most know, is the amount that is owed to a business. Ineffective management of it results in a huge amount of unpaid debts, which ends up hampering the cash flow.
  • Manage payments efficiently: Nearly 66% of SMEs found that the biggest impact on their business’ cash flow is due to the time it takes for money to process payments after receipt, according to one study, with some having to wait. more than 30 days for payments to be cleared. So, due to the time taken, if not managed well, it becomes a huge cash flow challenge for upcoming and ongoing projects.
  • Ignore overhead: A business with high overhead costs such as rental, travel, etc. will notice that the benefits quickly run out. To cover these costs and break even, the organization will need to and therefore make more sales. So, to make a long-term difference in the profitability and cash flow of the business, overhead costs cannot be overlooked.
  • Low profit margins: Although they say pricing is an art, the first step is always to understand your numbers. This means that knowing your profit margin is an extremely important metric for analyzing your prices. A low profit margin implies that the costs of the business are too high or the prices are too low or it could even be both. The lack of a sustainable and strong profit margin means that a business will always face cash flow issues.

After talking about the treasury challenges facing SMEs, let’s talk about how FinTech can help overcome them.

5 Ways FinTech Helps Small Businesses Better Manage Their Cash Flow

  1. Easier business loans: Traditional lenders are generally hesitant when lending to SMEs with smaller loan amounts and what they see as inconsistent, therefore risky income. Other than that, the whole loan application process is quite long and tedious. With the advent of FinTechs, it is now easier for SMEs to bypass conventional methods of obtaining loans and expand their operations faster with easier business loans. Thus, by closing the gap, with offers such as P2P lending platforms, FinTechs make the lending space much more dynamic.
  2. Simplified and faster invoicing systems: With access to simpler and faster billing systems, it’s now easier for businesses to thrive. In addition to saving them from existing revenue losses or the accumulation of bad debts, an effective management system helps businesses collect payments efficiently, regardless of location or currency, thereby creating a flow of transactions and sustainable cash flow.
  3. Effective account management tools: Thanks to FinTechs, SMEs now have access to many options to help them control their costs and expenses. Using online accounting systems, they can monitor their cash flow in real time and ensure that operations are running smoothly. By taking the guesswork out of running the business, FinTechs using expense and billing apps help business owners focus on expansion and growth rather than other small details .
  4. Transparency: The proliferation of the internet and mobile has helped FinTechs create digital banking solutions that reduce both the cost of transferring funds as well as the need for paper money to perform any type of financial transaction. This helps to make the financial system much more transparent and reduces the risks of tax evasion or other negative practices, thus ensuring the robustness of the business ecosystem.
  5. Increased profit potential: After the advent of FinTechs, capital markets have experienced enormous growth in terms of technological infrastructure. Regardless of the industry or type of organization, lowering costs ultimately drives higher revenues and profits. The union of technology and finance has led to the rise of trading platforms which through ‘market collection and analysis’ and ‘user data’ can help uncover trends, to provide aggregate market views and improve forecasting capabilities that ultimately maximize profit potential for businesses and traders.

With FinTech now allowing businesses to serve their customers regardless of their location, monumental strides have been made in the areas of payments, inventory management, invoicing, cost reduction, and more. that were previously unimaginable. Many components of FinTech are now intertwined in business operations that can help tremendously in cash flow management for SMEs. So, providing capabilities to take advantage of technology, FinTechs can really make a difference for businesses by keeping their cash flow positive even in times of crisis.

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