Payments vendor Cashflows is extending its real-time payments platform with the introduction of loans to merchants using its platform. According to Statista, about 40% of UK SMEs applied for external finance via a bank overdraft facility in the previous 12 months. They also applied for a bank overdraft facility in the same period. Many SMEs turned to alternate and sometimes expensive means of finance. Including leasing or hire purchase (20%), Credit cards (18%) and loans from partners, directors or owners (13%).
Cashflows realised that while it facilitated payments it had the opportunity to also offer loans with low risk. And a means that would enable SMEs to repay loans regardless of the business cycles. With fixed repayments, a poor sales month can introduce cash flow issues.
The Cashflows approach is to offer a loan based on the sales volume of merchants through its platform. Once delivered; merchants repay the loan with a fixed percentage of a merchant’s daily sales used as the repayment vehicle. Overall, merchants will repay a fixed amount over the term of the agreement.
The new service was created in partnership with Recap. Recap is a fintech firm offering cash advance products through partnerships with payment vendors such as Cashflows.
Hannah Fitzsimons, CEO of Cashflows, comments, “Businesses must be able to access the funding they need when they need it, but inflexible repayment plans leave many unable to invest in their own growth. By giving our customers the opportunity to access funding and make repayments directly aligned to their sales figures, we are once again demonstrating our commitment to the growth of small and medium enterprises.
“At Cashflows, we understand how difficult the current economic landscape is and want to do everything in our power to help merchants continue to thrive. That’s why we have partnered with Recap to launch Cashflows Advance and why we will continue to launch innovative new products that leverage our payments expertise to help British businesses grow.”
Who can take advantage of this new service?
The press release states that eligible merchants can take advantage of this offer. Merchants are able to borrow up to £150,000 with an agreed fee, repaid in a percentage of sales transactions over the term of the agreement. Businesses can use the loan to fuel business growth, making repayments faster. The percentage of fees is fixed. But if merchants want to repay cash advances early, they are able to do so with no fee.
What isn’t clear is if the cash advance is not paid back within the agreed term, though no collateral is required. Instead, Recap relies on a minimum of 3 months of payment transaction history through the Cashflows platform.
According to the Recap website and responses from CashFlows, the length of the term and the amount borrowed influence the amount withheld from payments. The term can vary between 3 and 12 months. Together with the cash advance amount requested will determine the amount withheld from payments. Enterprise Times asked what this amount would be, and the answer was, “The daily withhold rate ranges from 5% to 20% and is determined using an affordability calculation.”
According to Recap, merchants can choose the term and amount, and the calculation is based on this. Presumably, a shorter term increases the amount repaid from each transaction. The amount that Recap will advance will range from £5,000 to £150,000. The historical transactions will determine the maximum values. The amount of the fixed fee paid back over the term of the agreement, is agreed up front between the merchant and Recap. But no indicative amounts or percentages are given on the Recap site.
Jonathan Field, Managing Director of Recap, comments, “We are delighted to unveil our partnership with Cashflows, offering eligible customers truly pre-approved funding at the click of a button. Cashflows Advance removes funding rejection anxiety for merchants and empowers businesses to capitalise on growth opportunities with real-time offers, even when they are presented with a challenging economic environment.
“For Recap, the partnership marks a significant milestone as we continue our expansion in the UK market. We look forward to strengthening our partnership with Cashflows as we collaborate for the good of British business.”
Enterprise Times: What does this mean
This is the second financial offering that CashFlows is providing to merchants on its platform. Cashflows Anytime Settlement enables merchants to receive card payments into their bank account faster. The advantage is that it can ease the cash flow in a business that needs immediate access to cash.
Cashflows Advance is a very useful low-risk option for merchants to invest in growth for their business. However, like any financial load, it comes with fees which must be repaid. The decision must be weighed up carefully as it potentially reduces profitability in the short term. Though it does allow for the merchant to get higher revenues. It is certainly a method of financing worth considering and is almost certainly better than using a credit card.