Will Alternative Finance Options Erode Middle Market Credit Facilities? Post 3


Middle Market companies play a vital role in most countries. In the U.S., middle market companies (defined as having annual sales between $50 million to $500 million) represent close to 56,000 companies and support 16.5 million jobs, including many high value positions in the professional services sector.

While there is no one way these companies are financed, many use asset based lenders, factors, commercial finance companies, debt markets if they are large enough and of course banks.

Working capital for the middle market is a huge issue for them just like any other segment.  Now, more of these companies have alternative business finance options that provide some form of adhoc and transactional finance.

Right now we are early days with alternative business finance.  Many in the banking and Asset Based Lending and factoring world do not fully understand the dynamic of companies securing revolving credit facilities versus having their large buyers provider early pay options. Are those options nice for adhoc finance and quarter end window dressing needs, or can companies now start to look at those options for medium and long-term planning?

On the flip side, many of these middle market companies have not implemented invoice automation, supplier portals, and finance options themselves, and this is a market many vendors like Cedar Technologies, Billtrust, Emagia, Bottomline and others are targeting.  The focus here is to reduce DSO for clients and accelerate time to present invoice and apply cash.

As it relates to early pay, this is probably the segment that is being impacted by many of the different options out there – pcards, supply chain finance (maybe), dynamic discounting, invoice auctions, C2FO, etc. A looming issue appears to be large enterprises are requiring multiple platforms via supply chain finance, einvoicing and pcards to enable both self management and or early pay access. So imagine if one of these middle market companies wants to tap into 4 or 5 of their large buyers programs – it becomes a real management issue.

Still, this market is relatively untapped and represents a huge opportunity.  What we lack is a better  understanding of the decision criteria for using alternative business finance techniques versus traditional methods by the middle market.

If you are interested in learning more about an upcoming study on this topic, please contact me at dgustin at tradefinancingmatters.com  I will be interviewing and surveying middle market companies to explore these issues much deeper.

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