Are Early Pay Techniques Eroding Receivables for Traditional Collateral Lenders?

Moab, Utah is one of my favorite places in the world. Arches National Park is an amazing place, and it was made via sandstone and minerals eroding over a long period of time. Are receivables that have historically been used as collateral for traditional lending eroding over time due to early pay techniques?

Some of us believe eInvoicing technology combined with the many forms of transactional finance (dynamic discounting, invoice finance models, working capital auctions, reverse factoring, merchant cash advances, etc.) will erode the receivable base and impact traditional lending.  How quickly and how important Early Pay Finance will be to both the small and middle market business is an important question for many to understand, including einvoicing and eprocurement vendors, specialty lenders, banks, private equity, investors, and many more.

Today, traditional lending products like credit facilities, factoring, and asset based credit lines are under threat by new models. Right now, most of us have no clue to the degree this is happening other than the occasional news release from Tungsten Finance or going for a customer visit only to find they have joined a few of their buyers’ early pay programs.

We know the take-up of some of these models has not met expectation, but that does not mean that the toad is not boiling by one degree. In fact, you can argue there are a vast number of experiments going on at the moment that are changing the game. I mention a few:

  • TexturaGreensill and how construction receivable lending is becoming a big priority. See Oracle acquires Textura
  • Bluevine and Fundbox online invoice lending models- See the Devil is in the Detail
  • AztecExchange and their Pay-Me tied to networks
  • Invoiceware and their Latam tax compliance and finance capabilities
  • PrimeRevenue and SAP Ariba partnership

What we don’t know is generally the borrower’s (or supplier, vendor, etc.) perspective on a number of issues:

    • Attitudes, use and comments using alternative finance techniques (supply chain finance, dynamic discounting, auctions, pcards, online merchant cash advances, marketplace lenders, etc.)
    • What decision criteria are used to take early pay?
    • What platforms (einvoicing, supply chain finance, etc.) do these companies use and why or why not do they use finance?
    • Has Portal proliferation been a big issue?
    • How are existing credit facilities used versus say dynamic discounting or reverse factoring offered by the companies buyers?
    • Who makes the decision to finance versus use alternative finance techniques in a middle market company?

Global Business Intelligence will be conducting a combination of survey and interviews with small and middle market companies to understand these question. Contact me if you would like to find out more or visit here  

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Voices (4)

  1. George Papanikolopoulos:

    Great read David. I suppose the lender who looks to the receivables base to lend will no longer be required because the cash is already in the hands of the Supplier. There will still be funding gap, but it will be smaller. Timelio’s experience is that the decision to use funding options offered by early pay solutions is driven by ease of use and cost where access to funding in the first place may not be the primary issue (such as with larger suppliers). Suppliers who can get finance should view early pay options as an alternative funding source and a good way to diversify from traditional lenders, preserving credit limits for other purposes (eg capital purchases or business expansion). We still see this as a win, even for traditional lenders.

    1. David Gustin:

      Thanks George for the Down Under input, agree, its nice to have options and create win-wins if you can. Cheers,

  2. David Gustin:


    I’m not sure what is “bass ackwards”.

    Companies under $2 or $5M is not a place many banks want to lend due to capital, costs, need for huge volumes, etc. hence the reason so many are now partnering with fintech (eg. JPM – OnDeck, Fundation – Regions, ScotiaBank – Kabbage, etc.) to better understand their risk models, algorithms, data sources, APIs, etc
    But companies above $10M, especially on buyer-led techniques, now have sources of transactional finance which can impact collateral lenders. That is the point of the piece, not to criticize alternative lenders.

  3. Lance Stevens:

    This seems bass ackwards. Traditional lenders’ refusal to even make smaller loans (<$100k) are making these alternative financials models the savior a of small business. It is these products which are the merchant's shield in traditional lending/banking' swear on small business. The characterization of the new product attacking traditional lenders is sheer hogwash and political spin from the banking lobby.

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