Whoever said, “A bird in the hand is worth two in the bush” must never have heard of invoice financing (a strategy to turn invoices into cash). Sure, it’s reasonable to recognize the value in something small that you believe to be in your grasp over something bigger that’s even more speculative. In some scenarios, however, the potential inherent in reaching for those two birds right now is simply too compelling to ignore. Those scenarios include:
- Small and medium-sized businesses
- Start-ups in need of up-front capital to stay afloat while waiting for invoice payment
- Businesses who payment cycles are long or volatile as a matter of course
- Businesses experiencing temporary “adjustments” of one kind or another
Borrowing money against your accounts receivable
“Invoice financing” refers to the borrowing of money by a business that has amounts due from customers under outstanding invoices (i.e., accounts receivables). The lender loans a percentage of those accounts receivables, and the borrower pays back the loan, plus interest, once its invoices are paid. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full, notes Cisco Liquido, Exela’s Senior Vice President of Business and Strategy. Because assessing the appropriateness and desirability of obtaining invoice financing is a complex and data-driven process, it can be helpful to utilize data analytics to maximize returns and optimize cash flows. Exela’s Collections Management platform can help enable that by aggregating valuable data from within your enterprise. Additionally, our P2P (Procure to Pay) platform can help automate all of your accounts payable functions, as well as help match you with potential invoice finance lenders and manage the relationship between borrower and lender.
Loaning money against your borrower’s accounts receivables
On the other side of invoice borrowing is invoice lending. There are distinct advantages associated with the lending side of invoiced financing, the most obvious of which is that the borrower’s invoices act as collateral. In other words, you’re lending on a secured basis, and most cases, risk is limited by the percentage of accounts receivable advanced to the borrower (i.e., the lender advances, say, 85% of the amount of accounts receivable, but the borrower’s obligation is secured by 100% of those accounts receivable).
Of course, it’s impossible to eliminate all risk because of the possibility the borrower’s customer(s) will fail to pay the invoiced amount(s), resulting in a complicated collections process in order to recover the collateral. However, as Liquido notes, that’s where effective risk management comes in. “Being the best in class at invoice processing isn’t going to give you a competitive advantage — but being the best in class at risk might.”
Automating invoice assessment is a crucial step in risk assessment and management, and Exela’s solutions (from our P2P platform to our liquidity and collections management platforms) can help. To learn more about Exela’s rapidly deployable business process automation solutions, check out our Solutions page.