As the situation develops, we are likely to see banks and lending institutions approach riskier business profiles – especially those falling in the SME category – with more caution. These businesses, in turn, could turn to non-traditional, and increasingly popular, financing options to access credit, such as buy-now-pay-later.
Irrespective of the economic context, accounts receivable credit – issued via terms of sale – remains a reliable option for businesses of all sizes. Essentially a promise to pay, this form of credit is relatively unimpacted by interest rates.
What we do see in tough economic times, though, is companies maximizing their cash conversion cycle (CCC) by reducing their terms of sale. The CCC is, in basic terms, the period of time between the date of sale and the date that payment is received. The longer the cycle is, the longer it takes to realize the money owed for a product or service and, crucially, to repurpose those funds. Businesses must assess whether they can risk issuing 180-day payment terms, or if they need to tighten up the cycle and reduce them to 60, or even 30 days.