Accelerated digital transformation across all sectors due to the pandemic has led to new routes for businesses of all sizes to secure alternative finance when they need it most.
Morgan Terigi is Co-Founder and Director of Incomlend. A serial entrepreneur, Morgan boasts an extensive background in retail and trade. He also specialises in mechanical engineering. Here he shares his thoughts about how fintech is leading the economic recoveries among global SMEs
In an increasingly cashless society, accentuated by the migration to online shopping in the past decade, fintech has grown to be a multi-billion-dollar industry. According to the Pulse of Fintech H2’20, a bi-annual report on global fintech investment trends published by KPMG, overall global fintech funding across M&A, PE, and VC was US$105 billion across 2,861 deals in 2020.
Following a solid year and the accelerating demand for contactless and digital payment services, the fintech market is expected to grow. Individual organisations and banking institutions are developing new ways to allow consumers and businesses to trade online effortlessly. As companies continue to struggle with the aftermath of the pandemic, fintech and alternative lending solutions offer a means to survival. It’s also an opportunity for them to grow and develop during a grave, uncertain period. As economies begin to build, fintech seems a smart option.
Fintech’s potential for SMEs
Fintech companies offering alternative financing solutions to small and medium enterprises (SMEs) can bridge the trade finance gap. For instance, invoice financing by fintech companies plays a vital role as an intermediary to facilitate transactions between buyers and suppliers. It allows buyers to extend their payables and accelerate payment to the suppliers, providing both the buyer and the seller greater liquidity and less variability in the timing of payment.
Effectively, SMEs are selling their invoices and obtaining finance without any risk. This approach is gaining increasing traction because SMEs can access quick turnaround financing solutions where they cannot get traditional bank financing and lines of credit.
When COVID-19 struck last year, SMEs scrambled to address a mix of hot-button issues that impacted operational viability: raw materials shortages, delivery challenges, labour restrictions, and immediate short-term financing for supply chains. The pandemic put a spotlight on weaknesses in cash flow and the options to secure short-term working capital. That said, trade financing instruments such as invoice factoring and discounting can help buyers and suppliers bolster cash flows based on existing stock or receivables.
Take the Incomlend invoice financing marketplace for example. Businesses – specifically exporters – can sell their invoices to private and institutional investors at a discount in return for receiving early cash for their products or services. These off-balance-sheet funding options allow SMEs to manage operational expenses better and unlock liquidity for growth opportunities.
Incomlend provides trade receivable finance through invoice discounting and supply chain finance programmes. Aimed at suppliers selling goods abroad, the platform acquires invoices at a discount, providing them with working capital in exchange. Meanwhile, the supply chain targets buyers who import goods from other countries. The tech-enabled and secure Incomlend platform allows importers to extend their credit terms on invoice payment to their suppliers and manage the payment/document flow.
While the pandemic has forced a rethink of measures to sustain the global supply chain, SMEs that embrace transparency, technology and flexibility in finance will likely see faster recovery. This improved resilience will help them take advantage of trade opportunities and avoid costly complications from future disruptions.
As the global economy continues to recover, it’s essential to recognise the crucial role fintech can play in progress and the opportunities it delivers to small and medium-sized businesses across the world.