The Key to Competitive Advantage

December 9, 2022

As the world heads toward a possible recession in 2023, one of the industries that may be disproportionately affected is the supply chain. When the gross domestic product (GDP) falls, enterprises import, export, and trade fewer goods as a result.

In this kind of economic environment, enterprises in the supply chain generally take one of two approaches to handle the shortfall. Some will institute a hiring freeze across the organization, making exceptions only for key talent that drives revenue. Others will go back to the figurative drawing board, rethinking their business strategy.

While both of these initiatives are necessary – enterprises absolutely should reevaluate their hiring policies and business plans – neither should be the end-all, be-all strategy for a recession. The key to competitive advantage during these times is decidedly less exciting, as it’s not about tightening your corporate belt through a spirit of grit and resilience or making savvy boardroom deals that keep the company afloat. The key to surviving, if not thriving, during any economic climate is simpler: working capital, which is the total difference between a company’s current assets and its current liabilities.

Business leaders in the supply chain who focus on freeing up more working capital for their enterprise can gain major competitive advantages. The operative word in that statement is “can” since working capital is not in of itself the competitive advantage, but the means to this end.

With working capital, an enterprise can invest in essential, revenue-generating resources at a time when other organizations are cutting them back. They could invest into technology that digitizes aspects of their business and creates operational efficiencies. They could invest into infrastructure that helps their business achieve greater economies of scale. They could invest in new strategic hires that can generate exponential rather than incremental growth across important business metrics. Such investments can produce a virtuous cycle, as they can create more working capital that can be further reinvested to create even more working capital, extending the competitive advantages of an enterprise over industry peers even further over time.

This surplus of working capital is ideal, but achieving it may be easier said than done. If a business leader looks to the typical line items on an accounting spreadsheet, he will get the same results as everyone else. To free up more working capital than competitors, business leaders need to look where only the most forward-thinking enterprises are: invoice financing.

Invoice financing can help both sides of the supply chain produce more working capital. The process for exporters is straightforward. An exporter ships their goods to their overseas buyer as usual, but instead of waiting up to 120 days for the export receivable to be paid, it can be paid upfront in as little as 3 days through an invoice financing platform. The export receivable will be paid up to as much as 90% of its face value (the factoring provider takes a fee for facilitating the financing), and the exporter can enjoy more working capital sooner. If the exporter uses invoice financing for multiple transactions, the business can quickly build a war chest that can be used for reinvesting into important resources. Invoice financing for exporters is thus industry agnostic, working in favour of brands in everything from garments and textiles to pharmaceuticals.

The process for importers is also straightforward and equally beneficial. Importers provide the invoice financing platform for the exports receivable that they wish to be paid earlier. The invoice financing platform then pays off this export receivable immediately with the exporter, and the importer in turn enjoys much more favourable payment terms: They have up to 120 days to pay back the full face value to the provider. This system maintains a positive business relationship with their exporter compared to late payment or non-payment while giving them more working capital to reinvest into their own business.

Invoice financing, in short, can be the best path to more working capital for both importers and exporters. With more working capital, these enterprises can focus on business activities that lead to growth rather than merely maintaining operations like most of their industry peers during times of economic crisis. Despite these advantages, enterprises may still be reluctant to try invoice financing, given how novel the solution is.

For importers and exporters interested in exploring invoice financing, Incomlend is here to help. As a top invoice financing platform – we were even recognized as one of the fifteen fastest-growing companies in Singapore in a prestigious annual ranking by The Straits Times and Statista in 2022 – we have plenty of expertise and experience to share with your enterprise. Just reach out to our team for a quick chat via the button below.