Market Update: What Credit Trends Are We Seeing in 2019?
1. On-time payments. Account debtors, or our clients’ customers, are paying relatively the same as in prior years overall. We have not seen any overarching trends leaning towards slower or delayed payments. This indicates that the economy continues to track positively so far this year, and we do not expect to see much change throughout the remainder of 2019.
2. Quick pay programs on the rise. Fortune 500 companies are beginning to offer more supply chain financing and quick pay programs. Under these in-house vendor financing programs, companies such as Sodexo, AT&T, Nokia, Pepsi and others are able to pay their vendors’ invoices faster (anywhere from 3 to 15 days) for a discount on the invoice. When these programs are not taken, the vendors’ terms may be longer, from 60 to 120 days in some cases.
However, not all businesses qualify for these programs, and sometimes those few days or weeks in receiving invoice payments may not support the cash flow needed to meet payroll and other obligations. Whereas, with accounts receivables financing, companies typically receive same-day funding so immediate payment can be received for working capital needs. Moreover, invoice factoring can have competitive rates, especially when your receivables financing partner is a bank – such as the Allied division of Axiom Bank, N.A.
3. Increase in cash advance online lending. Optimism in the marketplace continues with credit structures to companies offering higher advance rates and more flexible terms. However, there are also online lenders—often referred to as cash advance companies—that advertise funding options in one or two days. Although these lenders continue to overwhelm the Internet for business owners seeking quick funding online, many of these fast solutions also end up costing a company 25 to 150 percent in an effective interest rate. Such high rates lead to an extremely high cost of funds and ultimately, an inability to repay the debt putting the business and the business owner in true financial jeopardy.
We recommend reading the fine print on these offers and truly understanding that obtaining a loan for $100,000 to have to repay $150,000 to $200,000 may solve an immediate, temporary need but could have permanent, negative effects on a business or the business owner.
Allied’s solution is to be a funding partner who understands your business, can help you solve temporary financial needs and build your company for long-term success.
Overall, banks and lenders are seeing increased credit applications, companies are experiencing increased sales with new business opportunities, and collections from customers continue to be stable.
What do these trends mean for the future? More credit will continue to be extended in the near future and commercial loans will continue to rise, pushing companies to take on more debt at the same time. Now is the time for companies to take advantage of the new and continued opportunities in the market, while maximizing their cash flow and lowering their cost of funds.
It is a prime time for business owners to seek out a long-term partner that can help access new, needed capital for these opportunities at competitive rates. And, business owners should look to choose a partner that will stick with them should a bump in the road occur or should the market or industry experience a downturn.
Finding the right financial firm who will be with you through the good and the bad is critical for any business owner. Are you ready to find that partner for your business? If so, contact Allied Affiliated Funding today.