Benchmarking FinTech Business Lending by Company Size

Why Company Size matters when it comes to adopting Alternative Finance

We see various alternative finance techniques being offered to companies by size. Generally, size matters when it comes to the adoption of different alternative payable and receivable lending techniques. It is important to understand the role of Corporate Treasury, how they are organized and their level of sophistication which can be helpful in understanding new working capital management solutions brought to them.

Small companies (<20M)

For small companies under $20 million, corporate treasury and finance typically operate as a unified position or can even be handled by the CFO. Options to liquidate receivables are plentiful.  Many firms are pioneering new finance solutions using invoice data, advanced underwriting platforms and credit risk capabilities.

For example, if you sell on platforms like Shopify eBay, PayPal, or Amazon, Merchant Cash Advances provide a lump-sum payment to a business in exchange for an agreed-upon percentage of future credit card and/or debit card sales.

eFactoring automates traditional factoring by applying new underwriting tools via one of three invoice sources: accounting software , einvoicing platforms or uploads by customers.

If you happen to sell to larger companies that offer dynamic discounting, your customer offers to retire your receivable early based on a sliding scale, ie, the earlier the payment, the higher the rate.

There are many more models as well, including seller centric models that are deploying marketplace lending methods to offer dynamic credit limits based on your receivable book.

Download Trade Financing Matters new whitepaper Alternative Finance: Market Update, Treasury Considerations

Medium sized companies ($20M to $1bn)

Middle market companies are serviced by an array of conventional (banks, factors, ABL) and non conventional (asset managers, insurers, specialty finance, etc.) financial firms.

Middle market companies tend to be more active users of supply chain finance with their larger customers, especially when there is a concentration of receivables to one or a few large enterprise customers. A middle market company may have $12M in sales to Lowes. The company may source from a few vendors overseas and get 45 days, and Lowes pays them in 90 days.  By having access to supply chain finance, they can reduce their DSO tremendously for a big portion of their receivables.

This is especially true in industries which are highly concentrated by large globals, such as Retail, where you have the likes of Home Depot, Lowes, or Walmart, or Pharma, Telecoms, Consumer Package Goods (eg. P&G, Unilever) and Food and Beverage, where the giants dominate and push terms to 90, 105 or even 180 days.

In addition, we have seen more Treasurers using C2FO’s marketplace platform, when their customers are someone like a Fortune 100.

Small Corporates ($1bn to $3bn)

Small corporates have been users of reverse factoring and are now more actively deploying this solution to their own supplier base as they look to lengthen terms. Global Business Intelligence currently counts over 100 deals in this space.

In addition, both C2FOs marketplace and LiquidX receivable solutions are options here as well.

Large companies (>$3 billion)

Most large corporate treasuries operate an in-house investment bank, financial advisor and investment manager and leverage the in-house bank to manage cash flows between subsidiaries.

Financing and capital raising initiatives typically are focused on very large scale programs such as securitizations, asset based lending structures, bank revolvers, capital market debt issuance, etc. P-card programs typically will be the responsibility of Treasury Shared Service centers who must manage compliance and expense reconciliation of various pcard programs in use (e.g., T&E, Virtual).

In summary, whether its reverse factoring, dynamic discounting, receivable auctions, working capital platforms, eFactoring, pcards or other techniques, the options to retire receivables early for Treasurers has never been this plentiful nor confusing. Many of these solutions provide an “option value” to a company, ie, the ability to opt-in when a Treasurer needs cash. This liquidity injection is proving to be quite valuable, particularly at specific times (ie, quarter end) or adhoc (when cash is needed), or even on a more permanent basis.

Download Trade Financing Matters new whitepaper on Alternative Finance: Market Update, Treasury Considerations

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First Voice

  1. Tony Brown:

    As you probably know, David, it’s not only Small Corporates and Large Companies that use reverse factoring to lengthen payment terms from and support financing to their vendor base but, increasingly, reverse factoring is being offered to Small and Medium sized companies as well.

    Presently, companies like PrimaDollar, a UK trade finance company, provide trade credit to US, European and other OECD buyers, discount approved invoices to suppliers in China, Bangladesh, Pakistan and elsewhere, and also support these factories by arranging pre-shipment production financing.

    Since (according to the World Bank) there’s a $1.6 trillion trade finance gap for SMEs — 40% of which occurs in Asia — it’s no wonder that venturesome trade finance companies are looking to establish a presence in emerging markets to plug the gap created by traditional banks who are drawing in their trade finance horns!

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