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How Fintech is Helping Startups with Their Cash Flow

Tony Smith

Tony Smith

Co-Founder and Senior Director at Business Expert
Tony Smith is a co-founder and senior director of Business Expert. As an entrepreneur, Tony gained much of his experience over the last decade in digital marketing and business development, whilst growing a successful insolvency advice firm. Tony is now focused on maintaining the success of his existing businesses, along with Business Expert’s exciting and unique finance platform.
Tony Smith

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Have you ever considered how your inability to access cash when you need it is impacting the growth of your business? Even if your startup is profitable and performing well, just imagine what you could do if your cash could circulate faster. Far from just restricting growth, the failure to manage cash flow properly is one of the leading causes of the failure of startups.

In fact, recent research by U.S. Bank found that 82 percent of new business failures were the result of poor cash management or a lack of understanding about cash flow.

Thankfully, for startups struggling to get a handle on their cash flow, an increasing number of financial technology, or fintech, applications are entering the scene. Rather than relying on banks, there is now an innovative range of digital tools that can improve the quality and efficiency of functions like invoicing, accounts receivable and reconciliation.  

There are a number of ways fintech is helping startups manage and improve cash flow so they can start thinking less about surviving and more about thriving. Below are four ways you can improve your company cash flow.

Total expense management

One of the biggest challenges startups face is the lack of a single point of visibility for all money coming in and going out of the business’s multiple accounts. Without an understanding of exactly how much cash is in the business at any one time and how it is being spent, it becomes difficult to plan ahead and make informed financial decisions.

Startups typically use multiple payment types such as credit cards, bank transfers and even checks, but have no overall clear picture of all the transactions being made and how their cash flow is being affected in real time.

This level of visibility can be achieved using a digital expenses platform which is integrated with payment tools. This kind of technology is now being used by many startups to provide immediate oversight of all spending as well as the balances and credit limits across different payment streams.



Automate monthly payments

There’s nothing new about direct debit, but while it was once seen as an inflexible way of taking customer payments, now companies like SmartDebit and GoCardless allow startups to automate the process of taking regular and one-off payments from customers. Direct debit can be used to take:

  • Fixed subscription and membership payments
  • Regular and variable payments based on usage
  • Payments from customers with flexible terms
  • One-off payments

In addition to improving the timeliness of payments, direct debit removes the potential for human error which can delay the payment process. There’s also no need to be involved in the actual processing of the payment, so more time can be spent growing the business.

But importantly, not every payment processor is equal. Some services collect money on different days each month when it should be consistent, while others take fees directly from the collections, which can make it difficult to reconcile the books. Payment processors can also go out of business, which is why you should look for a provider where your payments are placed in a ring-fenced, identifiable trust account.    



Turn invoices into cash immediately

Even if invoices are paid on time, with payment terms of 90 days being the norm in some industries, startups are still effectively handing out free loans. Waiting 90 days for a payment to be made is something few startups can afford and is likely to cause businesses to miss out on new opportunities.

Thankfully, several startup resources offer a new range of options that allow businesses to finance their receivables immediately. They give professional investors the opportunity to finance business invoices for a small fee. The startup can choose which invoices it wants to raise finance against and how much capital it wants to raise.

This strategy can impact profitability as a proportion of every invoice is paid in fees. However, when used sparingly, it gives startups the ability to inject working capital into the business when necessary. That allows startups to operate effectively, make payments to suppliers, pay employees and buy new equipment.

Migrate receivables to the cloud

Startups cannot typically afford to hire a full-time employee to take care of their receivables. Instead, it usually becomes the role of the business owner, who spends their valuable time drawing up invoices and chasing payments rather than focusing on growth.

Research in the U.S. by Concur found the average cost of processing an invoice manually to be $12.90, while automating the process can reduce the costs by 29 percent.

For a firm processing 1,000 invoices per year, that translates to a saving of $30,000.

There are a number of providers such as YayPay and Corcentric that allow businesses to migrate their entire accounts receivable function to the cloud. Here they can benefit from predictive tools that create the optimal workflow for collections to increase efficiency.

In real terms, that includes things like tracking communications to make it easier to monitor and follow up on outstanding receivables. There are also automated reminders so businesses can communicate with their customers in a timely manner. While accounts receivable tracking gives businesses better visibility of their cash and allows them to accurately predict their cash flow position in the future.


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A new dawn for cash flow management

While many entrepreneurs use Excel to manage their cash flow and keep track of payments, given the raft of new and affordable fintech solutions, this is starting to change. No longer do excessive payment periods, unpaid invoices and a lack of cash flow visibility need to present such a daunting and time-consuming obstacle for these business owners.

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