Are Companies Using Early Pay Finance with their OEM and large Customers?

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Many middle market companies who sell to OEM and large enterprise customers are routinely offered some form of early pay technique such as supply chain finance, dynamic discounting, invoice finance, virtual cards or even invoice auction platforms.

While traditional lenders still intermediate the vast majority of working capital and liquidity solutions for middle market companies, the potential is there for more transactional and early pay finance to help reduce DSO at affordable advance and interest rates.

Middle market companies truly are the heart and soul of America and 99% of us never heard of them. Many are family owned or private equity backed, and quite a few have foreign ownership as well.  They are not the core client base for large global banks, and in most cases are too big for smaller factors and ABL lenders.

There is no one “common fact” about this group, although some interesting liquidity issues are cropping up. For example:

  • Many private equity backed companies have liquidity constraints and their borrowing base is restricted by how lenders define eligible receivables.
  • Middle market companies owned by deep pocketed foreign parents may have access to very cheap financing, but currency rate fluctuations are impacting that source of funds.’
  • Many companies don't have the margins to afford p-cards.
  • Supplier risk due to over-concentration of sales can be a problem, especially if a buyer starts to pay later and later.
  • While some companies in the middle market are fortunate to have surplus cash, can you have too much?

How does a company in the middle market navigate the traditional lending world with the new options springing forth due to structural market changes, and the fact that B2B commerce is increasingly becoming digitized, and is combined with data science, new risk and underwriting models?

Global Business Intelligence and Trade Financing Matters has been conducting 20 minute telephone interviews with a select number of respondents to deepen our research in this field. These conversations are confidential.

If you are in finance or treasury at your company and are interested in having a discussion to better understand what other companies are doing and the various solutions and techniques, please contact me at dgustin@globalbanking.com and be sure to include contact information.

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