By Mr. Nirav Choksi, CEO & Co-founder, CredAble
This year marks a turning point for business sustainability. Corporate leaders globally are looking to move out of a reactive mode to a proactive one in a bid to build the resilience needed to thrive in a fragmenting global order. Economic headwinds have resulted in a drop in trade flows in 2023. This has marked a reversal from the post pandemic growth registered in 2021 and 2022. The risks are even more pronounced for Micro, Small, and Medium Enterprises (MSMEs)—considering how they have lesser capital reserves.
Stimulate revenue growth by easing working capital constraints
There’s no doubt that geopolitical instability has vaulted to the top of the boardroom agendas. There is more to this. Most organisations today face higher debt refinancing costs. This is a result of low, fixed-rate debt raised during the pandemic starting to mature. In fact, most of my conversations with companies over the past two years have
revolved around fostering stabilisation and resilience in the wake of pervasive geopolitical challenges. Working capital optimisation plays a critical role here.
Businesses can employ working capital strategies to extend their cash runways and establish a resilient foundation for tiding over economic downturns and achieving sustainable growth. Taking into account the interdependencies within supply chain networks, businesses need to broaden their scope beyond their own internal operations and look into the working capital needs of their suppliers (even those in the lower tiers) and their sales channels. The focus should be on managing working capital efficiently, which will enable businesses to strike the right balance between operational liquidity and growth aspirations.
Releasing tied-up working capital for a competitive edge
As corporates are looking to adapt and respond to economic challenges and supply chain disruptions—working capital optimisation will take centre stage. In times like these, businesses need to tap into the vast potential of their
trapped working capital to fuel expansion and investment opportunities.
J.P. Morgan’s report—’Increasing Efficiency: Working Capital Index 2024’ highlights that there is a staggering $707 billion of trapped liquidity in working capital across industries. To empower businesses to unlock trapped capital from their payables, receivables, and inventory management cycles—FinTechs are launching new working capital financing products and flexible solutions tailored to help insulate businesses from ongoing economic fluctuations and market volatility.
Future-proofing working capital financing
Today, we see tighter scrutiny on the cash conversion cycles. Businesses are re-examining their cash flow projection models to better understand working capital management.
In line with this, FinTechs have identified opportunities to create dynamic and responsive working capital financing solutions. For instance, instead of relying on traditional collateral-heavy credit evaluations that may not accurately reflect a small business’s financial health—new-age FinTechs are deploying Artificial Intelligence (AI) algorithms to take into account real-time sales data and customer payments. This model offers businesses a financing model that adjusts in sync with their cash flow cycles, ensuring businesses ample liquidity and smooth operations without overburdening them with rigid credit terms and repayment structures.
At CredAble, we recently launched the Revolving Short-Term Loan—our latest offering that is designed to transform working capital access for MSMEs by aligning repayments with their cash flows. Our goal is to offer a ‘credit card-like solution’ for businesses dealing with unpredictable cash flows. By offering flexible, pay-as-you-use financing and aligning repayments with the unique cash flow patterns of businesses, we’re enabling MSMEs to access funds when they need them most.
Credit underwriting undergoes a transformation
In addition to making working capital financing more accessible, we’re also witnessing a paradigm shift underway in the credit underwriting models. By leveraging AI and machine learning technologies—FinTechs are at the forefront
of this transition and are strengthening credit decisioning models and speeding up disbursals. Lenders are analysing vast datasets and detecting patterns that traditional models may miss. With built-in early warning signals, they are better placed to identify potential risks earlier in the loan lifecycle and provide timely alerts in case of any mismatches observed in collections.
It’s interesting to see the emergence of alternative credit underwriting models that allow lenders to use data from sources such as public records and rental payments—and further refine their decision-making processes to better align with their risk appetite and the goals of the businesses they cater to.
Make way for structured, innovative working capital financing solutions
FinTechs are enabling businesses, even those with smaller capital pools, to make the most of time-sensitive opportunities by providing innovative, tech- driven financial solutions. These platforms backed by AI-powered technologies allow businesses to secure financing based on real-time data:
● Enabling them to remain agile
● And respond to market changes or manage unexpected expenses with ease
FinTechs are also transforming supplier ecosystems of enterprises by enabling them to access on-time financing and take advantage of extended credit periods. Armed with these on-demand financing solutions, enterprises are now able to strengthen their relationships with vendors and distributors across the supply chain, aligning payment terms and optimising inventory management to boost overall performance.
Strengthening capital reserves in a world in flux
In today’s emerging economies, we’re witnessing a leapfrogging of digital-first solutions. Businesses that are looking to sustain their growth and stay ahead of the curve need to reconsider their fundamental approach to accessing and allocating working capital. The good news is that innovations in working capital financing are not only altering how businesses optimise their cash flow but also paving the path to a new era of growth opportunities.
Having said that, beyond prioritising working capital optimisation—outperformers are those who have their network of suppliers integrated into their payment systems, reducing any delays and errors. By unlocking early payments to their suppliers, these businesses can benefit from timely discounts and stronger buyer-supplier relationships.
