When it comes to funding, it makes good business sense to have more than one source. That is why alternative marketplace funding is growing at pace across the world, particularly in Ireland and the UK.
Traditional finance providers are often the bedrock for term lending, trade finance, invoice discounting and commercial overdrafts. But it is widely accepted that business today moves at considerable pace, not always mirrored by traditional providers. The banking sector is continuing the recovery back to profitability with a focus on core products and services. This leaves a gap between the needs of an expanding business and the type of financial solutions on offer. This is especially true for working capital funding.
Alternative Funding
Alternative finance providers are, by definition, more agile. They are structured very differently. Rather than lending off their own balance sheet, alternative models provide a platform to bring like-minded buyers and sellers together. For the SME, this brings a far more progressive approach to risk and creates a wider appetite for unique and financially sound business models.
Receivables Trading
Receivables Trading is an alternative working capital funding solution available via an online platform. The model is ideally suited to established SME’s with Multinational Company (MNC) or Sovereign Debtor(s). To optimise their working capital, the Seller can upload Invoices or Purchase Orders/Approved Contracts to the platform and Buyers purchase them.
No Funding Limitation
The Buyers are Capital Market institutional funders, Pension Funds, Corporates and sophisticated Investors. There is a large Pool of Funders. The fact that there is not just one entity but a pool of funders purchasing the Receivables (Invoices or Purchase Orders) is important for the SME. It eliminates the requirement for limits to be placed on their funding.
Many SME’s using an Invoice Discounting Facility will have experienced funding limits from time to time due to Debtor Concentration (over exposure to one Debtor) or Geographic Limits (based on the legal system of the country of export).
Having a Pool of Funders also extinguishes the needs for any long-term commitment, lock-ins or fixed costs. At no stage is there an ask for a Personal Guarantee. This funding solution puts control back into the hands of the SME and allows them to decide when they need to access funding and on their terms.
Carve Out Debtors
The alternative model works in tandem with existing facilities. An SME can choose to ‘carve out’ specific Debtors and their Invoices or Purchase Orders to trade on the Platform.
How it works is the Seller registers themselves and nominates their MNC customer (the Debtor). They are subsequently approved to trade on the platform. This happens within a month, sometimes just a week.
From there it’s an online service. The Seller uploads their Invoices or Purchase Orders to the platform for Buyers to purchase. Funds are deposited to the Sellers bank account within 24 hours. It’s that straightforward.
Conclusion
Receivables Trading is a highly flexible and fast working capital solution. With the ability to carve out specific Debtors and a ‘Pay as you Trade’ approach, Receivables Trading is the perfect second basket for your funding eggs!