Rising Interest Rates Create a Need for Real-Time Data

It was too good to last forever. Over the last decade and a half, following the aftermath of the credit crunch crisis, businesses benefited from rock-bottom interest rates as global policymakers cut them down to historic lows to stimulate the economy. 

However, over the last 18 months, there have been consistent rate hikes to try and counter rising inflation.

In May 2023, the Fed set US rates from 5% up to 5.25%, an increase of 10 consecutive hikes since March 2022, when the rate increased from just 0.25% to 0.5%. While there was a pause in June 2023, it’s predicted that further rises will come later in the year due to an ongoing need to bring inflation down to a target of 2%. 

Correspondingly, in the UK, rates have risen 13 times consecutively, with the most recent increase in June pushing them up from 4.5% to 5%. Similar to the US, additional rate increases in the UK are also expected. 

Rising interest rates increase the cost of borrowing money for high-growth businesses. Combined with the current economic environment, less-favorable market conditions, and decline in VC funding, these companies are more likely to seek out debt funding. 

Companies are now under pressure to generate real-time data to scenario plan and, where necessary, access competitively priced debt funding lines before rates rise again. 

A Need for Better Scenario Planning

The uncertain economic outlook has resulted in a growing need for better scenario planning. Fast-growing companies must demonstrate agility, prepare for whatever might come next, and respond quickly to opportunities and threats. This should cover a range of outcomes, including a drop in demand for goods and services and the proposed impact of investment into marketing activity.

Depending on a company’s performance scenarios, it may require access to debt funding, but it’s only possible for organizations to pivot their approach by generating accurate and real-time data. Basing decisions on slow and human error-ridden finance information poses barriers to changing business strategies and will likely lead to suboptimal outcomes.

Optimize Funding Requests

Accessing the right level of debt funding is tricky to balance and get right.

While it can be handy to have additional cash on hand, rising interest rates mean that requesting facilities with underutilized levels can be expensive.

Debt finance is typically paid back over one to five years, with extended payback periods often having higher interest rates due to uncertainty from lenders about your means to pay it back.

Finance leaders should use insights from cash flow forecasts and scenario plans powered by real-time data to make funding requests with values in line with future objectives and the required level of investment needed.

The only circumstances when funding required beyond planned business activity should be sought is if lenders allow funds to be paid back early without penalties for drawdown facilities.

These work similarly to an overdraft, with businesses only paying fees on the value of funds drawn down upon rather than the total amount available. However, they are typically only available to SMBs. 

Access Finance Speedily for the Best Rates

The likelihood of interest rates continuing to rise means that businesses likely in need of debt finance should seek to access it sooner rather than later.

Emerging fintech lenders are disrupting incumbent financial institutions by allowing for applications to take place online in just a few minutes, with successfully accepted requests resulting in funds being received in days rather than weeks. 

Many of these providers ask for access to recent accounting and finance data, as well as up-to-date bank statements and annual accounts. It’s not uncommon for lenders to connect directly to accounting and ERP software to pull in data to save time from uploading it manually. 

The speed of access to finance means that finance leaders have an extra imperative to ensure their accounting data is up to date.

Access Real-Time Data with AP Automation 

Using end-to-end automation-powered AP solutions that integrate directly with your ERP will speed up data flow and streamline many processes within the finance department.

These tools should incorporate the full range of activities in the AP lifecycle, including:

  • Supplier management
  • Invoice management (with smart OCR)
  • Global payments
  • Payment reconciliations

This will free up the time of CFOs and put them in a strong position to adjust their business strategy based on market conditions and, where necessary, seek out funding to support future activity quickly, potentially avoiding further rate rises.

The Controller’s Guide to Accounts Payable Automation

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