Breaking free: 3 ways invoice financing helps underbanked businesses thrive

February 2, 2024

In the dynamic, technologically enabled, and highly competitive world of small and medium-sized businesses (SMBs), cashflow remains a decisive factor in determining success and sustainability.

For underbanked SMBs, many of whom face challenges when attempting to secure traditional bank loans or credit lines, invoice financing has emerged as a compelling alternative.

In this blog, we delve into invoice financing and explain why, for underbanked SMBs, it unlocks potential that few other financial tools can match.

But first, we look into what it means for an SMB to be underbanked.

What does it mean if an SMB is underbanked?

If an SMB is deemed 'underbanked', it typically means it has limited access to traditional banking services and products. In other cases, it can mean the SMB is flatly rejected for lines of credit. 

A more common predicament than many might assume, being underbanked has significant implications for such businesses' financial health and growth potential.

Limited access to conventional financial services

An underbanked SMB will often find it challenging to secure traditional financing solutions from mainstream financial institutions, such as term loans or credit facilities.

The reasons can vary and include being newly established without an extensive financial history, operating in sectors perceived as high-risk by banks, or lacking the collateral usually required for a conventional loan.

The ripple effect of being underbanked

Although being underbanked leads to difficulty accessing funds, the ripple effect touches a broader range of operational challenges.

Without adequate financial support, SMBs often struggle to manage cashflow efficiently, invest in growth opportunities, or even meet day-to-day expenses. A lack of access to financial services can also mean missing out on the benefits of financial advice and management tools banks typically offer their clients.

Navigating financial limitations

Underbanked SMBs are increasingly turning to invoice financing to overcome these hurdles, as it provides the much-needed financial oxygen to keep their business alive and planning for growth.

By recognizing your financial position as being underbanked, you can more effectively navigate your economic reality and make informed decisions that support business growth and stability.

How can invoice financing help underbanked SMBs to flourish? 

Here are three ways invoice financing helps underbanked SMBs to thrive.

1. Enhances cashflow

The primary advantage of invoice financing for SMBs lies in its ability to boost cashflow. Unlike traditional loans that may take weeks or months to secure, the facility offers a quick solution to convert unpaid invoices into readily available cash.

This immediacy is crucial for underbanked businesses, which often struggle with the painful gaps created by long payment terms of 30, 60, 90, or even 120 days.

Invoice financing allows SMBs like yours to access the cash tied up in invoices in as little as 48 hours, providing you with the liquidity needed to meet ongoing expenses, such as payroll, inventory, and other operational costs.

This enhanced liquidity helps maintain day-to-day operations and allows you to seize growth opportunities that require urgent funding.

2. Provides options over traditional financing

For many underbanked SMBs, gaining access to traditional banking facilities can be daunting.

High credit requirements, extensive paperwork, and lengthy approval processes often put these options out of reach. It is here that invoice financing arises as a more accessible alternative, relying on the creditworthiness of your customers rather than your own.

Moreover, invoice financing reduces the reliance on traditional bank loans, which can be markedly beneficial in times of economic uncertainty, when banks tighten their lending criteria.

By leveraging your accounts receivables, you can access the funds you need without risking the collateral typically required by banks.

 3. Supports growth and stability

Invoice financing is not just a tool for bridging cashflow gaps; it's also a catalyst for growth.

By providing immediate access to funds, you can take on larger projects or orders without worrying about how you will finance their upfront costs. This ability to accept bigger contracts or expand to new markets can be a game-changer for any SMB looking to scale.

Also, the stability that comes with improved cashflow can be transformative in itself. You can plan with more certainty, invest in marketing, hire additional staff, or look to enhance your product offerings.

Demonstrating effective financial management and a solid foundation for growth, this added stability will also make your business more attractive to future investors and partners.

Invoice financing: the difference between surviving and thriving

Invoice financing offers a simple and secure lifeline to underbanked SMBs, granting freedom from the constraints of traditional financing methods. By enhancing cashflow, reducing reliance on conventional banking, and supporting business growth and stability with zero debt accrual,  the facility stands as a powerful tool in the financial inventory of businesses like yours.

As the SMB ecosystem continues to evolve, the role of invoice financing is expected to grow in status and reputation.

For underbanked SMBs, in particular, understanding and leveraging this tool could be the difference between surviving and thriving.

Invoice financing with Stenn

Stenn specialises in providing invoice financing services to small and medium-sized businesses engaged in international trade and working with delayed payment terms.

Turn unpaid invoices into liquid capital with Stenn now. Alternatively, find out more about the other financing options available to your business in our Resources Hub.