As Australia’s economy recovers and demand picks up in the labour hire market, traditional finance products look set to give way to nimbler ‘fintech’ products that optimise liquidity and position labour hire companies for growth.
A recent report from Deloitte, ‘Beyond COVID-19: New opportunities for fintech companies,’ sums up the unique advantages of fintech businesses in the current climate, not least the fact that they are; “Unburdened by complex, disparate, legacy systems, which allows them to build platforms using a cloud-native approach.”
So what does the cutting edge of fintech have to do with labour hire? Well, quite a lot as it turns out.
Pending the full rollout of the vaccine later this year, Australia’s economy has weathered the Covid-19 crisis relatively well, and as Q1 2021 draws to a close, signs of recovery are emerging. The Guardian newspaper reported on 2 March that the “Australian economy grew by 3.1% in the December quarter as the domestic recovery from the pandemic-induced shock consolidated.”
Meanwhile, Jobkeeper, the Federal Government’s Covid-19 wage subsidy, is set to wind down on 28 March, with figures released by the Australian Taxation Office (ATO) in February indicating a marked drop in demand for the government support package. Between October and December last year, 1.54 million employees collected the Jobkeeper allowance, compared to 3.6 million between April and September.
Alongside the signs of recovery, another growing trend has advanced in lock-step with the pandemic; the acceleration of innovation and digitisation.
McKinsey recently described one of the biggest changes resulting from Covid-19 as the “rapid migration to digital technologies in all industries and sectors. The speed of this change is unprecedented.” This can only mean one thing for the labour hire industry; growth.
In Australia, as the economy begins its climb back to pre-Covid-19 levels, the labour hire market is ripe to take advantage of this rapidly changing way of working. As business confidence returns, sectors reporting growing demand for skilled labour include mining and mining services, wholesale and manufacturing, IT consulting, fast-moving consumer goods (FMCG) and transport and logistics.
However, labour hire businesses have traditionally been hampered in responding to demand by the age old pain point; lack of liquidity. It was ever thus. According to figures released by ABS in February, the second most common factor impacting businesses (after Covid 19 restrictions) is reduced cash flow (30%).
This raises an important question for SMEs operating in the labour hire market: Is labour hire invoice finance fit for purpose? Read our case study on how we saved a labour hire company 13% on their working capital funding costs.
Traditional forms of finance include factoring – a form of debtor finance in which a business sells its accounts receivable to a third party at a discount, and often seen as a measure of last resort. A later evolution of the form is invoice finance, where a lender takes full control of the bank account into which the customer pays, and releases funds when its administration requirements are met.
As the digital transition gathers pace, these forms of finance are beginning to look unnecessarily cumbersome and outdated. They leave businesses stymied by tight controls over their cash flow and entail complex administrative requirements and documentation. They also mean companies issuing invoices with terms from 30 to 60 days experience marked peaks and troughs in cash flow that hinder planning for future growth.
New fintech solutions are emerging that offer alternative models. One is Melbourne based company TP24. Backed by Credit Suisse, The TP24 product acts like a line of credit and has significantly lower administrative requirements than invoice finance. Clients are funded based on the value of their whole debtor book (outstanding customer balances) rather than individual invoices, as long as the debtor is insured. The debtor book is then monitored by TP24 with all payments flowing directly into the customers’ bank account. The company also offers impressively low, single digit interest rates.
TP24 uses automated credit technology to assess SME invoice data and calculate risk down in real time, making it fast, agile, and accurate.
Jobkeeper is on its way out, the Australian economy is on its way up, and access to nimble, pain-free finance could just be the liquidity workaround labour hire businesses need to rebuild and grow, in line with Australia’s wider recovery.
TP24 offers a unique solution for SMEs in Australia. We provide a line of credit working in harmony with your software. Secure, flexible credit with limited admin. Get in touch today firstname.lastname@example.org.