Cash Flow

What Businesses Need to Know About Financial Services

BY Rapid Cash
07 Jul 2021

What Businesses Need to Know About Financial Services

Having a good understanding of what the financial services landscape looks like could really benefit a business owner when it comes to funding projects, making financial efficiencies, and mitigating risk through, for example, insurance.

But it’s a huge sector that’s constantly evolving through technological innovations, so getting to grips with it may not seem like an easy feat. That’s why, in this article, we’ll attempt to condense this vast sector (valued at £132 billion), into its key disciplines – in the hope that you, as a business owner, can quickly identify what type of help your business may need and how to source it.

We’ll cover:

  • What financial services are.
  • What types of financial services are available.
  • How financial services are regulated.

What are financial services?

To understand financial services, let’s first outline the key players within the market. These include:

  • Lenders – including retail banks such as NatWest, independent online lenders, investment banks that advise corporate businesses on how to raise money.
  • Borrowers – including businesses of all shapes and sizes within the B2B market, or individuals within B2C.
  • Financial service providers – such as accountants, who provide a service to help with financial management in exchange for a fee.
  • Investors – who look to profit from helping businesses finance their operations.
  • Savers – meaning your average UK resident who stores money within a bank to benefit from its interest rates.

To elaborate on how these entities interplay, let’s use a small hospitality business with one premise as an example. Being an SME, this company will likely have a business banking account, hosted by a retail bank.

Should they wish to increase control over their finances when experiencing a period of growth, they may seek a financial consultant to help them understand how to make the most out of an influx of cash. The consultant could potentially propose that they upgrade their accounting systems, adopting new accountancy software. Or they could propose seeking external finance to help manage cash flow or fund a property acquisition that could enable further growth.

If the SME owner in question agrees that external finance is a viable route for them, they may decide to reach out to a high street bank or online lender to finance their operations with a popular product, such as a loan or overdraft. Alternatively, they may head down the investment route; trading equity for cash.

If our hospitality business has a rock-solid business plan and continues to grow its profits, it could continue to attract investors, lenders, and find itself better placed to leverage financial services to accelerate that growth even further.

What type of financial services are available?

Having established an understanding of the types of businesses involved in the financial services mix, let’s take a look at the popular types of financial support services you’re likely to come across in market.

Accounting services

Digital accounting packages are growing in popularity and becoming more sophisticated due to open banking technology.

Business banking services

All business owners are likely interested in getting access to good interest rates, and keeping their business finances completely separate to personal finances as part of their financial management plan.

Insurance services

There are a range of different types of insurance businesses may be interested in taking out. Some of the best-known insurance products include indemnity insurance, or employer’s liability insurance – aside from the obvious insurance of physical property and goods that businesses should explore as best-practice.

External investment

Whether via an investment banking service, a private investor, or a venture capital firm, a profitable business on a good trajectory could pitch to an external party to exchange equity in the business in exchange for cash.

Typically, smaller businesses will trade equity through the sale of shares, whereas larger businesses or even governments could sell secure bonds (which are essentially corporate IOUs). Equity exchange is desirable for investors if the business model is profitable, and they can profit either via dividends or through the sale of the company.

Regulation and the financial conduct authority

An introduction to financial services would not be complete without mentioning the UK’s official body charged with regulating financial services; the Financial Conduct Authority. This body is responsible for ensuring financial markets are honest, fair and effective – so that consumers ultimately get a fair deal.

The FCA decrees that around 58,000 financial service providers it oversees must conduct business with integrity and transparency; it aims to encourage healthy competition in UK markets while enforcing laws to combat money-laundering and setting international standards for financial exchange.

For small businesses, the FCA is an intermediary that can support with complaints and advise on how best to proceed if law has been breached.

How can business owners leverage this knowledge?

Hopefully, this overview of the financial services landscape shines a light on the categories different financial services fall into within the UK markets. Next steps into the world of finance could include:

  1. Auditing your current financial operations to find opportunities. This could help you determine whether you’re banking with the right company, or whether you could benefit from an accountancy package.
  2. Identifying the pressure points within your financial strategy. If you’ve produced a comprehensive cash flow forecast, then you likely have a good idea of your business’ appetite for cash.
  3. Learn about the financial services that could help you cover your pressure points. If you’re anticipating a period of slow and steady growth, and need cash up front, an invoice financing model could support you. Or a business loan may be more appropriate for funding large expansions.

One common characteristic that underpins all financial services is the management of money and pursuit of profit. While borrowers look to acquire funds from banks or investors to help them realise their business’ growth potential, those very banks and investors also look for credible prospects to invest in that are likely to bring about profit to all parties involved.

So, if you’re a business with a clear plan for growth – then financial services could provide an exciting boost to your financial strategy to help you mitigate risk and open doors.

How could Rapid Cash help?

At NatWest Rapid Cash, we offer a financial service of our own. It’s essentially a smart type of invoice financing that integrates with your business’ accounting software to give you the option of lending against specific unpaid invoices.

If you’re eligible for our service, then our flexible finance facility could help you get access to cash without having to wait 30, 60, or 90 days for invoices to be paid. If you’re interested in learning more about our service, see how we compare to other finance products.

To be eligible for Rapid Cash, businesses need to have been trading for a minimum of 6 months and have an annual turnover of at least £100k. Businesses need to be Limited Company or Limited Partnership registered in England and Wales. Additionally, you need to invoice other businesses and use one of the following digital accounting software: Xero, Quickbooks, Sage 50, Kashflow, FreeAgent and Netsuite.

Security and guarantee required. Product fees may apply.

Rapid Cash

Rapid Cash offers a modern line of credit unlocked by your unpaid invoices, offering greater flexibility and automation than most traditional finance facilities.