21 Feb Kinsenas, Katapusan, and Why Every Entrepreneur Needs a Financing Lifeline
Manila, Philippines — It’s the 15th of January. 3 more hours and banks are already closed. While most workers are preparing for a night out with friends, about to enjoy a cold bottle of San Miguel beer; stress, fear, and thoughts about checks that are about to bounce are the companions of 29 year old businesswoman, Shiela, as she scours her phonebook, calling anyone willing to give her a loan so she could pay her employees and her company’s dues before the day ends.
Shiela, like other entrepreneurs, is a dreamer. Her passion for art and her out of the box ideas of communicating pushed her to put up a company that provides advertising services for different big corporations in the Philippines. Though she is a new player in the space, her perseverance got her big contracts within her first year of operations. Her desire to make things happen fast also made her take huge compromises to get the deals, which includes unclear or undefined payment terms from her clients. Nonetheless, she has the soul of an entrepreneur, ready to take on anything that comes her way.
Fast forward to this year, 5 days before January 15, Shiela learned that with her current burn rate, her cash flow wouldn’t be enough to cover her payables scheduled for release. She started to feel a little nervous, but for the most part, remained confident, with the promise that her receivable due in 3 days before January 15 from one of the biggest telcos in the Philippines can be collected. But as they say, most promises are made to be broken, and in Shiela’s case, it has not been an exemption. After sending out one of her staff to collect, instead of receiving payment, she received a death statement — — her receivable has not been released yet, and has no specific date on when it will be available.
With 2 days left before the 15th, she immediately prepares all the documents she thought the banks would need to attempt to get a loan from them.
This time, Shiela’s perseverance is not enough. After meeting 5 banks for a loan, none could get her a quick loan within 2 days. She would have to wait for at least 2–4 weeks to get the loan she was asking for. With a formal loan not meeting her timeline, one of the banks suggested she takes an advance from her credit card instead.
Being a former employee of a good company, Shiela was able to get a credit card of up to 250,000 PHP credit line. It seemed like a very good option at the time, especially since she can withdraw the amount ASAP. But there was a huge downside to it — if she takes this advance from her credit card, she will have to pay 15% month per month until the amount is paid. That’s 180% annualized percentage rate, she would be paying more than double the amount she needed.
Time is almost up for Shiela. 15th day of January 2017, a day she would never forget. All she could do was wish she could freeze time as she gets her first taste of the excruciating pains of entrepreneurship.
Only 10% of Philippine Businesses Pay On Time
Shiela’s case is not new. Every year, more than 80% of small businesses fail and cashflow constraint has been one of the biggest contributors.
Though entrepreneurs should be responsible in managing their business cashflow well, the bigger issue is the consistent late payment behaviour of companies in the Philippines, giving a new definition to <span=”u-bold”>Filipino Time.
A study conducted by Dun and Bradstreet Philippines shows that only 10% of companies across industries pay their dues on time. At first glance, you would think that big corporations would be an exemption, considering their their size, but on the contrary, a huge number of them actually don’t pay on time. From the same study, there is a bigger possibility for a company with 1–9 employees to pay on time (16%) than companies with 100 or more employees (11% on time).
To bring light to these numbers, being the bigger company in a transaction, and having leverage over the smaller suppliers, if there no incentive to pay on time, and there’s no penalty (usually) in paying late, then the natural reaction would be to not care about paying at all.
Banks Give Money If You Prove You Don’t Need It
Our banking system was not made for small businesses. Banks think that accesibility means building more and more branches, but for small businessmen, accessibility means an easier and faster way to access financing especially during bad times.
To get a formal loan from a bank, it would usually require that the business run for at least 3 years with good financials. More so, it would take weeks if not months before you get even approved for it. And as with Shiela’s case, if you don’t qualify, you are left with financing options that would eat your business up with unimaginable interest rates.
An Equal Chance for Dreamers Like Shiela
The business landscape needs to be more financially inclusive especially for smaller businesses. This has been the primary reason why companies like Acudeen has been created.
As a company that provides receivable financing support through technology to small businesses, Acudeen has been working hard to get big corporations to sign up to their program to provide the lifeline that their suppliers need.
By getting big corporations like PLDT, Globe, RCBC, and Mercury Drugs onboard, Acudeen is able to provide options for their suppliers wherein they can choose to be paid for their 30–150 day invoices ahead of time.