Financial liquidity proved to be the greatest challenge facing entrepreneurs in 2021

The last year has been defined by the pandemic, which proved a great challenge to many entrepreneurs. According to the “Covid-19 year from the perspective of Polish entrepreneurs” research, published by the Ernst & Young consultancy, more than half of Polish companies chose not to invest in 2021. As many as 78% of questioned companies considers the country’s economic situation – as opposed to time preceding the pandemic – to be unfavorable.

What do the entrepreneurs identify as the source of their financial liquidity problems? Most often, they pointed out delayed payments (64%), lack of income due to the lockdown (62%), clients declining services (59%) and extended payments dates (44%).

In terms of methods to deal with those problems, the situation doesn’t instill much hope. What are the company owners doing to face the challenges brought by the pandemic? Regrettably, some of them – 59% – had to rely on own savings. Almost a third of companies (29%), still declares financial troubles – and even increase of company’s debt (27%).

Temporary improvement of the situation thanks to relief action.

Governmental programs and relief actions to help financial liquidity are, obviously, a great help to many entrepreneurs. By that we mean, for example, tax and social insurance exemptions and reliefs. Introduction of these contributed to shortening payment delays. It was due to such actions (among others) that financial liquidity did not greatly worsen.

Research into the topic of payments, conducted by Coface, indicates that Polish companies suffer average payment delays of 48 days, that is 9 days shorter than shown by the research done a year earlier. In theory, this is very good news. However, one should bear in mind that governmental relief is planned as a short-term solution and is to be phased out in 2021. This has caused 2/3rd of all companies to expect their business activity to worsen over 2021. According to research by Coface, 7 out of 12 industries expects the number of delayed payments to increase in the coming months.

Priceless financial liquidity

In the circumstances of an increasing number of companies facing financial liquidity problems, factoring might prove a priceless form of support. Each promptly paid invoice might make a huge difference and be worth its weight in gold. It is made even more important due do the pandemic discouraging banks from granting credit to entrepreneurs.

Factoring helps prevent payment delays. Thanks to this service, an entrepreneur can receive their claims from issued invoices. This means they can receive the funds they have de facto already earned, but are frozen in the issued invoice for several weeks – or even months. It is, undoubtedly, factoring’s largest advantage. When utilizing factoring, the entrepreneur can manage their funds as they please, rather than allocating them in predetermined ways.

Factoring has become increasingly popular, especially among small- and medium-sized companies, thanks to its relatively wide availability. Important factors from the perspective of a factoring provider include: entrepreneur’s industry, their contractor portfolio, degree of diversification and debt portfolio. The SMEO factoring is available even to an entrepreneur who does not generate profit, or even is noted by Bureau of Credit Information as having a small debt.

Factoring – a modern business management tool

Factoring is more than a lifebelt in case of temporary financial liquidity problems. This service can also be utilized to better manage one’s business and help it grow quicker. A factoring provider monitors all outstanding receivables and verifies contractor. This way, an entrepreneur gains valuable time they can use to develop their business. It also allows one to avoid unpleasant situations arising from dealing with unreliable contractors.

It’s worth looking at factoring from a strategic perspective. One could, for example, regularly forward invoices for financing immediately after their issuing. It allows one to immediately receive the money on their bank account and be able to put it into use. Factoring costs can be included upfront in the cost of sold services or goods. This way, one can guarantee their contractors long payment deadlines. For a slightly higher price, these contractors would be allowed a much longer period to settle their obligations – which can oftentimes be key for choosing one’s business partner. Thus, the entrepreneur gains a competitive advantage and finds it easier to gain new clients.

SMEO factoring can also be utilized directly from other platforms, such as some of the online invoicing services. It’s a very convenient solution. Entrepreneur can issue an invoice and forward it for financing in a single place. It is made possible due to our systems’ architecture, allowing modular integration with partners. It allows them to broaden their product portfolio, while also offering them additional benefits.

Author:

SMEO S.A.

Last Updated on March 24, 2021 by Karolina Ampulska