Die Factoring, Die – Middle Market Companies Use of Early Pay & Invoice Finance – Post 2

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Yesterday, we made the point that current adoption rates of early pay techniques and invoice finance is still in its infancy with the middle market.

But how does the use of e-invoicing impact their desire to use early pay techniques and invoice finance going forward? We know B2B and B2G einvoicing is here to stay and will continue to grow, and this opens up a whole new set of challenges and opportunities.

For the challenges, how do they manage multiple buyer platforms (use an integrator, hire own staff, etc.) and also manage the invoicing, remittance, and cash application process?

Being forced by Coke or Kraft to send invoices their way is not something most companies desire, but to get paid, big buyers make the rules.

And this presents a compelling question of should suppliers build their own portal? The business case is beyond the scope of this blog, but there are many areas of inefficiencies in the order to cash process and certainly having your own portal is a conversation for relevant departments like Sales, IT, Customer Support, Marketing and Credit Management.

For the opportunities, how do your customers portals open up finance? If a middle market company has 1000 invoices from 30 buyers, and only 5 offer some form of early pay and they have to go to different  platforms to get it, well unless those 5 buyers are a large percentage of receivables, it probably will not happen.

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Invoice consolidators like Basware Finance through their partnership with Arrowgrass  and others like Billtrust are in a position to finance all invoices or groups of invoices combined with the right pricing model, and underwriting analytics.  The trick is how to use information from both the network plus other sources and create highly intelligent risk analytics that learn and result in better pricing.

Ultimately it gets down to having the right discussions with Corporate Credit managers to understand what decision criteria are used for using alternative finance techniques versus their existing facilities. Credit Managers need to ask themselves a number of questions:

  • Are sales growing faster than projections and early pay and AR finance present ways to cushion working capital demands?
  • Are there rate advantages and advance advantages with new invoice finance techniques?
  • Is the money coming from transactional finance stable or is there concerns of here today and not here 6 months from now?
  • Can new forms of finance help with ineligible receivables where you cant leverage those as collateral?

Ultimately, companies need to decide the best way to capitalize their business and finance their working capital needs. There is no silver bullet, but this space is getting very interesting.  I surmise that its the equivalent of the warming of the toad effect, where five years from now we will wonder how we got here when it seemed so far away.

My colleague Jason Busch and I have spent a lot of time with different actors such as private funds, banks, card companies, trading firms, logistics providers, procurement and finance organizations and technology vendors seeing how these worlds can collide. Yes, there have been stumbles, fumbles, and bumbles, and much of the time it has to do with the fact that this is not just a tech solution.  Understanding the worlds of banking, credit and capital markets, in addition to accounting, legal, regulatory and other issues is complex.  But worlds are colliding, and as new stars are born, some will slowly fade away.

Give either jbusch (at) spendmatters (dot) com or myself at dgustin (at) tradefinancingmatters (dot) com.a shout if you would like to chat further.

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