Agility: the watchword in a post-pandemic world

As we continue to grapple with the crisis that has revealed and intensified existing vulnerabilities, we have experienced major shifts in social attitudes, policy, work, and consumption.

While the full impact of the pandemic has yet to be realised, some of these changes will be short term and there will undoubtedly be some changes that stay. A closer look at these changes reveals that the pandemic has amplified and accelerated existing trends in many sectors, rather than created new ones. Taking this a step further, one could argue that the scale and duration of changes has made these permanent rather than temporary shifts in behaviour.

On an individual level, many of us have re-evaluated what is important to us and have embraced new ways of working and socialising. For businesses, history has taught us that in severe economic downturns and recessions, businesses that are able to adapt are more likely to survive. During the pandemic we have seen many businesses seizing online opportunities, becoming delivery friendly, and diversifying or shortening supply chains.

Opportunity: a changing mindset to borrowing?

In its Small Business Finance Markets Report, the British Business Bank highlighted four key themes.

Firstly, many SMEs utilised government-backed finance schemes and support in a move away from more traditional forms of external finance. While there was an increase in the use of loans, there was a reduction in the use of traditional external finance such as bank overdrafts, credit cards and asset finance.

SMEs have faced difficult times and many businesses have been forced to seek finance due to the impact of the pandemic. Smaller businesses have been the hardest hit and cash flow is cited as the main reason for loans.

Speed and competitiveness will be crucial to meeting the demands in the current environment...

The last two themes of the report are perhaps the most interesting.

The level of debt for many SMEs is increasing - particularly in the worst affected sectors. Some may be in debt for the first time, and a sizable number are likely to struggle with debt repayments. At the same time, data shows that SME cash balances increased 20% year-on-year, and the number of SMEs with cash balances over £10,000 increased five percentage points.

Finally, the report notes that there could be a significant further demand for funding as businesses continue to recover.

In relation to businesses that never borrow money, the so-called permanent non-borrowers, the number of business in this cohort declined over the course of 2020. Given the scale of borrowing, it was not unexpected to see these rates fall, and as the report suggests this could reflect a shift in SMEs’ attitudes to borrowing.

Many businesses have had some form of business support package, and for many this has been their first taste of borrowing. Whilst they may have borrowed money to survive, can they now see an opportunity to borrow money to thrive?

We cannot ignore that economic uncertainty is likely to impact demand for finance and weigh on attitudes to borrowing. Furthermore, the appetite for finance is likely to vary based on financial position and sector.

Combatting uncertainty with agility

Around the world, national lockdowns have placed significant restrictions on many businesses' ability to operate – particularly SMEs. Many have needed to pivot to completely different operational models. Conventional business plans are challenging for many businesses due to the uncertain nature of the economy. Many business leaders are now planning for multiple scenarios to allow them to be flexible and able to react to an evolving environment for the best interests of their business. Businesses are working hard to have a better understanding of the opportunities and threats, which gives rise to shaping products, services, and business models to meet them.

For example, pre-pandemic supply chains were very lean or would run just-in-time operations – which allowed them to carry low inventory or stock. With supply chains being interrupted since the pandemic, some have moved to shorten supply chains, working with local providers, or working with multiple suppliers for key components and materials to spread the risk. There are likely to be businesses holding higher levels of stock to avoid disruption, should supply chains falter.

This is perhaps where receivables finance providers may then look at funding the inventory – perhaps branching into more asset-based lending solutions using collateral that is sitting in a warehouse to be able to provide the business with additional working capital.

Naturally, the main priority for lenders is to manage risk, but for those in a position to seize the opportunities in the market, this can only be realised by understanding the specific operating picture – in which change is likely to be constant.

By aligning your technology with business goals and establishing an agile culture, lenders can effectively navigate the rapidly changing marketplace with unparalleled responsiveness.

There used to be hard and fast rules about what is and is not factorable, but we have seen innovators realising that they can fund “anything” provided they have certainty around repayment. Lenders must consider their ability to compete in the next normal and those who seek to understand customer needs and expectations will understand this starts with being active and embracing agility.

Speed and competitiveness will be crucial to meeting the demands in the current environment, and there are four elements to agility which lenders need to consider.

Firstly, have the foresight to plan scenarios, explore multiple options, and prepare to adapt to market changes. It not only allows you to accelerate your digital strategy but map your future customer experience.

Secondly, by challenging assumptions, valuing speed over perfection, and shifting priorities based on market data and customer needs, you exercise adaptability to respond to rapidly changing internal and external dynamics.

Testing assumptions, committing to rapid-cycle learning and being prepared to fail fast not only helps you adapt to the market sooner but also the delivery of superior products or services. Perhaps even securing a first-mover advantage.

Finally, think about how you can prepare for setbacks and bounce back from failure, but be open-minded with appropriate contingency plans.

It will be imperative for lenders to be adaptable, listen to customers, and explore new approaches to gain ground and to start rebuilding momentum.

Technology as a gateway

For SMEs, responding to trends or shifts in demand has, and will, involve some level of innovation or digital transformation. The same applies to lenders.

Digital platforms and technology are key to supporting agility within a business, and they actively support solutions and innovation to address customer needs at the speed of the market. The flexibility of your solutions or technology providers should allow you to easily reshape service offerings and products to the market quickly to react to these changing needs.

By aligning your technology with business goals and establishing an agile culture, lenders can effectively navigate the rapidly changing marketplace with unparalleled responsiveness.

With modern technology platforms, much of the work is completed through configuration and parameterisation allowing funders to be more experimental and launch new products or services faster to meet demand.

Of course, we should also acknowledge that the customer experience matters just as much as the offering, and it has become a decisive factor for customer retention and growth. Technology now underpins most great customer experiences and is an important part of the feedback loop to drive new or improved products or services.

An era of agility

Most SMEs have needed to reassess their ideas about what is happening in their traditional business domains and the challenges they face. Changes have been apparent in not only how or where they do business but markets, suppliers, and business models.

SMEs have needed to be very adaptable and flexible in how they operate, and lenders need to complement these businesses by taking an agile mindset or approach.

Lenders should carefully examine their growth opportunities in the new normal and assess their agility to better realise opportunities. Equipping SMEs with the financing solutions to navigate their current environment will be paramount to driving recovery and supporting SMEs in the months and years ahead.

Article written by:

Kevin Day
CEO, HPD Lendscape

First appeared on: FCI World Factoring Yearbook