7 Innovative Fintech Solutions for Increasing Working Capital

Traditional financing is often inaccessible for small to mid-sized businesses. Fintech solutions can help you access funds and increase your working capital more easily.

On any given day, market estimates say that $40 trillion waits in businesses’ accounts receivable. This situation has only become worse as customers extend payment terms to cope with rising inflation and pandemic recovery.

If this sounds familiar, you may have considered traditional financing options, such as working capital loans, to deal with cash shortages. However, your business might struggle to qualify for financing if you have cash flow issues, your credit score isn’t high enough or your business is relatively new. Even if you do qualify, the long timelines and fees associated with traditional financing may make this option impractical for your business.

The good news is that, in recent years, fintech companies have developed a variety of solutions to address financing gaps and help small to mid-sized businesses increase their working capital. If you are interested in nontraditional financing and emerging working capital solutions, here are seven innovations to consider for your business.

1. Digital lending

According to EY’s global survey of small to mid-sized businesses, two-thirds of respondents are interested in gaining access to faster credit. This isn’t always possible through traditional lending options, such as bank loans, which can take a few months before you see any cash — that is, if you are approved.

Realizing the inaccessibility of working capital finance for small to mid-sized businesses, fintech companies have filled this gap by offering digital lending. With digital lending, lenders use digital channels and financial data (typically an applicant’s business and bank account information) to assess a borrower’s risk profile and approve loans automatically, often with near-instant qualification. This process is aided by technologies, such as artificial intelligence, that can expedite qualification processes that would otherwise take weeks through most banks.

Digital lending products, such as Bluevine, give businesses more flexibility when it comes to securing funds. That can be especially valuable if you need access to cash immediately. For small to mid-sized business owners, digital lending products offer an easier and faster financing solution than traditional institutions.

2. Credit score alternatives

In addition to digital lending, fintech companies have reduced barriers to small to mid-sized business financing through alternate credit scoring. Factors such as your business’s liquidity, credit score and tax history are used by traditional lenders in the loan approval process. But early-stage businesses often aren’t established enough to have credit scores fit for approval. In 2019, almost 80% of small business loans were rejected. This issue could get worse as inflation rises and interest rates increase.

To make business loans more accessible, some fintech solutions use alternative data to assess a business’s creditworthiness. For example, OnDeck accesses your accounting and banking data, and uses machine learning to evaluate risk based on your financial activities. This allows you to access the working capital you need, even if you don’t have a credit history sufficient for traditional lenders.

3. Digital and mobile payments

In 2019, 42% of B2B transactions still used paper checks. This payment method can cause payment delays, errors and higher processing costs for your business, which can impact your working capital. One way to address this is by offering electronic transaction options. The easier it is for your customers to pay you, the more likely they are to pay you sooner.

Digital and mobile payment innovations make it more convenient for customers to make payments and can even improve working capital management. These payment systems allow you to receive payments digitally — for example, through a virtual card or mobile payment app. If you support global customers, fintech products such as Ebury can also help fuel working capital by simplifying cross-border transactions.

Using digital and mobile payment methods has several benefits. A more efficient payment process means that you get paid faster, which increases your working capital. It can also save your business the accounting resources needed to chase down customers and process manual payments.

Many businesses also favor digital payment solutions for more accurate and secure transactions. They can also give your business real-time financial data to improve your cash flow management.

4. Business banking as a service (BBaaS)

Business banking as a service (BBaaS), or open banking, allows banks and fintechs to securely share your business’s financial data (with your consent, of course). This innovation drives a variety of financial products and services that can increase your working capital.

For example, if your goal is to improve cash flow visibility and optimize working capital, housing your business’s financial data within your online banking portal and accounting software has limitations. BBaaS products integrate data to provide a more comprehensive, accurate and accessible picture of your financial position.

They can also drive payment solutions (for example, Zimpler) to replace transaction methods such as credit cards and checks. BBaaS solutions can increase your working capital by:

• Helping you easily track your cash flow and other financial metrics, so you can make better business decisions.
• Simplifying transactions, so you can encourage faster customer invoice payments.
• Using your financial data to evaluate products and services, so you can boost cash flow or secure financing.

5. Buy now, pay later (BNPL) for business

If your business has cash flow issues, purchasing new inventory or supplies upfront can seriously deplete your working capital. BNPL solutions allow you to make purchases through installments — essentially, a point-of-sale loan.

BNPL terms vary, but payments are often interest-free. Some BNPL providers allow you to determine payment amounts and timelines. This spreads out payments, so you have enough working capital to pay other bills on time and keep your business running smoothly.

Because BNPL is often interest-free, it can be more cost-effective than using credit cards, lines of credit or other working capital financing solutions. While products such as Klarna and Afterpay have dominated the consumer BNPL market, solutions like Playter optimize the BNPL experience for B2B transactions.

6. Process mining for supply chain management

Since 2020, supply chain disruptions have impacted the flow of goods and services, reducing sales and cash flow for businesses. Improving supply chain visibility can help your business identify and address process gaps to fuel working capital.

Traditionally, to understand your supply chains and other business processes, you had to rely on consulting stakeholders and documentation manually, which is time-consuming and often produces errors. The rise in supply chain disruptions has prompted the development of data analytics capabilities — also known as process mining — that provide more comprehensive, accurate and timely information about your business and supply chain operations.

This has several advantages over a manual approach. For one, it generates more accurate insights that aren’t influenced by human bias. It also gives you faster process visibility and real-time updates as your supply chain evolves.

Products such as Celonis take your business data and evaluate where and how various systems — from how you source and package products to how you process customer payments — can be optimized. For example, a process mining solution can uncover inefficiencies in your shipping system and suggest fixes. Faster product delivery could mean faster customer payments and increased cash flow.

7. Early payment platforms

You’ve most likely seen customer invoice payment terms increase in the last few years as businesses try to maintain working capital during pandemic recovery and inflationary periods. Even if your sales are high, this can create cash gaps that impact your business operations and growth plans.

Many small to mid-sized businesses struggle to qualify for traditional financing to address cash flow issues. If your business is one of them, you could use an alternative working capital solution. Enter early payment platforms like C2FO’s. These fintech solutions give your customers a small discount in exchange for paying you earlier than your agreed terms.

If you have large enterprise customers, they may already use C2FO’s Early Payment program. This means you can log in and request early payment on their outstanding invoices to increase your working capital immediately.

Early payment platforms can help you improve cash flow without taking on debt. They’re also more cost-effective and faster than other financing options, give you more control over your cash flow and improve financial metrics such as days sales outstanding (DSO).

The payoff

Fintech solutions present new opportunities to small to mid-sized businesses experiencing working capital challenges. In the last few years, a variety of innovations have emerged to help your business bridge cash flow gaps — especially when traditional financing is not a viable solution.

If your business doesn’t qualify for a bank loan or you want to avoid the fees associated with traditional financing products, consider leveraging a fintech alternative to increase your working capital and grow your business.

Your business could benefit from a combination of alternative financing solutions to improve cash flow. Find out how early payment integrates with C2FO’s capital finance solutions.