The cost of a healthy cash flow for the SME sector

June 30, 2015

Maintaining a healthy cash flow is integral to the survival of any business. Historically, extended payment terms often indicated that a company was experiencing cash flow problems, however recently a growing number of the world’s largest corporates now demand 90 to 120 days to pay their suppliers as a business strategy to maximize their working capital.

By extending their payment terms to up to four months, large corporates can increase their cash flow to invest in more projects at the expense of their suppliers who are usually small and medium sized enterprises (SMEs). This trend puts a major financial burden on the SME sector which is already operating with a small financial cushion and suffering from various hurdles to access funding.

With large corporates applying pressure on SMEs, and other conventional lenders lacking the appetite to invest in small-business loans, SMEs are unable to accommodate the financial pressure of extended payment schedules imposed on them due to the significant credit gap.

The International Finance Corporation (IFC) estimates that the current SME funding gap in the MENA region is around USD$260 billion. The UAE has a strong SME sector of about 300,000 SMEs that account for around 60% of GDP and over 90% of employment. They are the backbone of the economy, but they suffer from a lack of funding options that give them the credit they need with reasonable terms.

A rapidly popular tool that SMEs are currently favoring to maintain a healthy cash flow is Invoice Financing, which allows SMEs to manage their cash flow by closing the gap between the moment a business issues an invoice and when it receives the actual payment.

Invoice Financing is an extremely useful tool for SMEs in releasing some of the cash tied up in outstanding invoices without taking an actual loan. This enables the SME to match the receipt with the funding repayment. The Invoice Finance solution helps SME businesses boost their working capital and improve cash flow, by unlocking the value of their account receivables to ease the dual challenges of late payments and inflation.

In February 2015, Beehive, the UAE’s leading online marketplace for peer-to-peer finance, launched its SME Invoice Financing product to help bridge the current SME funding gap and to support the thousands of small-to-medium-sized businesses (SMEs) in the UAE in reaching their full potential.

Beehive’s powerful peer-to-peer funding platform links small businesses with smart investors and offers affordable short-term financing for UAE based SMEs. The Invoice Finance process is quick and easy, and businesses

are able to list invoices that are due within 60 to 120 days and receive financing within 24 to 48 hours at rates starting from 0.75% per month, significantly below alternative means of finance.

“Beehive helps business to gain access to faster and more flexible funding with rates much lower than conventional banking finance and with no charge for early repayments. We rigorously assess the risk profile of the businesses and their customers before adding them to the platform to make sure they are creditworthy and can make the repayments as agreed. This enables Beehive to pass on the benefits to both SMEs and investors by using platform technology to drive down costs. Our role is to ensure a fast and direct connection between investors and SMEs where both parties optimize their rates.” Craig Moore, Founder & CEO, Beehive.

 

Source: Business insight

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