Weather the recession with invoice factoring

Recession-proof your business and thrive during challenging times

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Recession-proof your business with these top tips.

Weather the recession with invoice factoring

In a recession, ensuring your business has enough working capital is not only key to continuing to meet your day-to-day obligations to employees, suppliers and customers – but it can also put you in a position to take advantage of opportunities to grow.

We recently explored why it’s crucial to find the right funding partner as recession looms – not only as lending standards are tightening at traditional financial institutions, but because alternative lenders often approach the funding process from a place of understanding, empathy, collaboration and responding quickly to challenges.

Ensuring your business is prepared for recession takes a multi-pronged approach – focused on your network, your cash flow and some strategic thinking. Here are ways to guard your company against the coming challenges:

 

1. Know where your cashflow stands

Whether you’re trying to meet biweekly payroll or looking to take advantage of an opportunity to scale your business, you need working capital to meet your obligations. But proceeding with confidence means knowing the state of your finances, so you’re clear on whether you’re on the right track or likely to face roadblocks in the near future.

Conducting a cash flow audit is an important step, as it allows you to take a closer look at your business’s working capital over a certain period. 

This will give you an updated picture of your businesses’ inflows and outflows and provide insight into any expected shortfalls before we head into recession, including whether you have more outstanding accounts receivables than you thought. If you do identify a gap, you then have the data in hand to take action to boost your cashflow, if necessary.

2. Cultivate relationships 

Along with working with the right funding partner, your focus on fostering strong relationships should also extend to your suppliers. Once a pattern of ordering and payment has been established over a number of months, you may be able to request extended or flexible payment terms, if needed. Some suppliers may also be willing to give you a lower rate on bulk orders or a discount if you pay your invoice on day 10 instead of day 90, for example. All of these measures will help keep your business cash flow positive.

3. Look for growth opportunities

When you’re feeling squeezed by inflationary pressures, it can be tempting to focus on putting out fires during recessionary times and instinctive to turn down chances to expand. But, as McKinsey explains, making it through tougher economic times like these means prioritizing growth – turning short-term challenges into opportunities. For example, taking advantage of new market share if or when it becomes available, launching or improving products or services to meet customers’ evolving needs can potentially pay off in a recession.

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4. Take a longer-term, strategic approach

In this environment, strategic thinking is one tool that will keep your business ahead of the curve – especially when it comes to anticipating challenges on the supply chain side or future price hikes in input costs.

Consider moving beyond a quarter-by quarter view to look at what’s happening to raw materials costs and take action to get ahead of potential increases. Recently, for example, one Liquid Capital client chose to take a longer-term view, purchasing raw materials with their invoice factoring capital – in this case, lumber – before inflationary pressures took hold. They were then able to resell the lumber to their clients using a peer-to-peer strategy at a markup that was lower than the market price.

Making strategic long-term investments, such as integrating more artificial intelligence (AI) technology into your business during this time can increase efficiency and help you come out of the recession with a competitive advantage.

5. Leverage invoice factoring to accelerate cash flow

Invoice factoring can play a part in a cost-savings strategy on the supply side – for example, when negotiating with your own suppliers for an early payment discount, using the cash you’ve received from factoring to pay your supplier can result in the supplier effectively paying for the cost of factoring.

Don’t just survive – thrive

Recession-proofing your business over the longer term can also involve working towards building a more resilient supply chain by reconfiguring supply networks, foregoing highly customized components in favour of easier to find inputs and lessening the risks of depending on only a few suppliers.

By strengthening your network, knowing where your accounts stand and thinking beyond the next quarter, you can bolster your business against the effects of a recession – and emerge from this period stronger, ready to take on your next business opportunity.

To learn more about how invoice factoring can help you or your client overcome the pressures of a recession, contact us today.

 

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A recession is looming – now is time to find the right funding partner

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As business owners face a recession, the time has come to find the right funding partner to support them as they face new challenges and opportunities.

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Just as companies are finally moving past the challenges the last few years brought, more economic woes are waiting in the wings. As interest rates rise in both the U.S. and Canada – with promises of further increases — and inflationary pressures persist, the threat of recession is now on the minds of almost every business leader and entrepreneur.

As one recent survey noted, nine out of 10 U.S. small business owners say economic trends such as inflation, supply chain issues and workforce challenges are having a negative effect on their businesses. Some 93% of U.S. businesses are also worried about the economy experiencing a recession in the next year.

Their worries may be well founded. According to the World Bank, the trend of central banks around the world raising interest rates simultaneously in response to inflation is likely to continue well into 2023, edging the world towards a recession.

For most sectors, rising rates, inflationary pressures and a looming recession are linked to a number of challenges. This includes pricing and contract-related concerns, higher borrowing and input costs along with supply chain slowdowns and staffing shortages. 

Businesses in industries heavily affected by fluctuations in cost, supply chain pressures and changes in business and consumer confidence are particularly vulnerable. According to data from the Canadian Association of Insolvency and Restructuring Professionals, this is most prevalent in the construction, transportation and warehousing sectors, with insolvencies increasing this year for many companies.

For many small and medium-sized companies, successfully navigating this part of the economic cycle will mean having the agility and availability of capital to pay employees and meet demand from customers.

With rising costs affecting inputs, even those experiencing high growth will need access to funding quickly to take advantage of opportunities in their market.

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Recession and traditional funding challenges go hand-in-hand

Unfortunately, just when cash flow is paramount, gaining access to it via traditional means has become more challenging as rising rates are causing banks to re-evaluate their lending risk.

In the second quarter of 2022, U.S. bank lenders began to tighten lending standards for commercial and industrial (C&I) loans to businesses of all sizes, according to the Federal Reserve’s Senior Loan Officer Opinion Survey. This tightening is expected to continue for the rest of 2022, as businesses are faced with an expected deterioration in debt-servicing capacity due to inflation, an expected deterioration in collateral values and an expected increase in the exposure to interest rate risk.

Finding an entrepreneurial partner

For many companies, the ability to thrive when a recession hits will mean having quick access to funding via a lender that looks beyond the data and takes the time to really understand your business.

In this climate, leveraging the close-knit relationship that develops between an alternative lender and small business will allow you to weather the cash flow challenges that a recession can bring. You’ll be prepared for working capital interruptions and – perhaps even more importantly – they’ll give you the tools required to take advantage of opportunities when they strike.

Looking at business through an entrepreneurial lens, established and partnership-oriented invoice factoring companies take a hands-on approach to client relationships. They take the time to dive deep into the data and seek to understand a company’s purpose and goals. 

They empathize with the financial and emotional impacts facing businesses during times like this, and are ready to discuss potential problems and solutions and aim to collaborate and grow with their clients.

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Ultimately, with the unpredictability of the changes that can emerge during a recession, it is important that a lender also has the flexibility to pivot and react, provide predictability and transparency, and give business owners the tools they need to proceed with confidence.

Alternative lenders are nimble and respond quickly to challenges

At Liquid Capital, our clients are just a call or click away from a funding decision, following the initial underwriting process. This can be tremendously helpful in an economic environment where opportunities and challenges arise quickly, and often, unexpected.

It’s common for financial institutions to be slower at approving requests for funding. They can potentially be required to wait for a company’s fiscal year-end or the results of an audit before distributing funds. Operating on a quarter-by-quarter basis, traditional banks also often have little incentive to issue loans with a high cost of administration, especially in the current environment, and consider companies with exponential growth to be higher risk.

 

One small business recently had the opportunity to scale significantly after landing a large contract to sell their product with a major U.S. retailer. However, the fact that the contract would represent 85 percent of their sales was considered by a bank lender to be too concentrated.

The company instead pursued an invoice factoring solution. Liquid Capital built a relationship with the large retailer’s accounts payable team and was able to notify and verify the receivables. This allowed the client to access the financing to buy the inputs to meet the sales demand – eliminating the need for the company to consider other options, such as prematurely selling equity in the business.

 

At the centre of the alternative business lending philosophy is a simple concept: a company that is not traditionally bankable can still be a high-growth business.

Finding a funding partner who takes the time to understand your company is one way to guard against the impact of a recession. Keep reading for more tips on how you can prepare your business for the new economic reality.

Up next: Navigating unexpected supplier price increases  

 

Advantages of factoring your invoices

Advantages of factoring your invoices with Liquid Capital

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Not all factoring companies are made the same. These are the benefits of factoring your invoices with Liquid Capital.

Advantages of factoring your invoices

Invoice factoring can be an excellent solution when you need business funding that’s as agile as your business. Many business owners have seized new growth opportunities and overcome cash flow challenges by partnering with a trusted and reliable alternative funding partner. 

However, not all invoice factoring companies are made the same. At Liquid Capital, here’s how we’re doing things differently:

1. We help accelerate your cash flow quickly

While some factoring companies can take several weeks to advance payment, long-established companies like Liquid Capital can often provide approved clients with funding in as little as one day.

2. We help navigate credit issues to access funding

Some traditional factoring companies may make it difficult to qualify for factoring advances, but that doesn’t make sense to us. Given that you’re effectively selling your invoices to a third party, so long as your customers’ credit ratings are good, you should qualify. 

Factoring, often considered one of the most accessible forms of financing, doesn’t rely on your company’s credit score, or level of revenue – and years in business are not part of the application process.

3. We give you access to significant funds upfront 

Some factoring companies advance smaller portions of the value of invoices. Liquid Capital advances at least 80% of the invoices’ value and sometimes more. That means you can get more funding, more quickly. 

4. We don’t overcharge our clients on fees

There are numerous factoring companies out there, and some of them charge high fees. Sometimes these fees are not clearly communicated. Trustworthy factoring companies like Liquid Capital are fully transparent and never charge hidden or egregious fees.

The amount you’ll pay can depend on several factors including the number of invoices you factor and their cumulative value, as well as the length of your factoring contract. Liquid Capital’s fees can often be comparable to what you would pay in interest on a loan.

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5. We don’t lock our clients into long-term contracts

Some factoring companies lock clients into contracts of up to two years. However, the more established and reputable factoring companies offer more flexible contracts, some as short as a month or two. And you usually pay lower fees if you do sign up to a longer contract.  

6. We protect your relationships with your clients

If your factoring company has poor customer service and pesters your clients for payment, this could adversely impact your relationships. However, this doesn’t happen with well-established factoring companies that offer high levels of consistently good customer service. The only aspect of your relationships with your clients that you will lose is chasing them for payment. Everything else remains the same.

All invoice factoring companies are not the same 

Until you’ve worked with a factoring company or two, you might think that all factoring companies provide similar services. But here at Liquid Capital, we pride ourselves on being different.

We’ve been successfully helping businesses for over 20 years by delivering:

  • Speedy financing: approved clients often receive funds within 24 hours.
  • Complete transparency: no hidden terms or complicated restrictions.
  • Expert advice: we consider your unique needs and offer a range of options.
  • Capital strength: we’ve deployed over $3 billion in working capital.

Ready to dive deeper? Check out our Invoice Factoring Guide, which provides some critical questions and info you may not have considered, which you should be asking of any factoring provider.

Contact us to find out more about how you can improve your cash flow by turning your invoices into immediate cash, with invoice factoring from Liquid Capital.