John Felix, managing director of White Oak Global Advisors, lays out the financing options that middle-market companies can deploy to reduce the stress on their supply chains and cash position.
Middle-market companies have had “one heck of a ride over the last 18 to 24 months,” Felix says, citing multiple supply chain disruptions caused by the pandemic, transportation congestion and bad weather. As a result, many are strapped for cash, and looking for how they can obtain capital, especially when their customers are slow in paying their bills.
Creative supply chain financing options can help to accelerate the cash cycle, says Felix, adding that it’s important to find a financing party that understands the prospective borrower’s particular plight, and can offer the appropriate menu of services.
The amount that a borrower must pay for capital depends on the creditworthiness of those to whom it’s owed money. Pending an analysis of the applicable credit risk, the borrower can sell the receivable outright, or monetize it through installation of an asset- or receivable-based financing facility. “Lenders will conduct a risk assessment to determine how much they pay you for a receivable, and ascertain its collectability,” Felix says. The selling of a receivable usually involves some discounting off the original bill in exchange for early payment, which he describes as “a cost of doing business.”
With inflation on the rise, and interest rates likely to follow, the cost of capital is going up. So it becomes even more important for companies to protect their cash positions and secure the right type of loans for shoring up their operations. Felix recommends maintaining a balance sheet that matches long- and short-term assets with their appropriate debt arrangements, a strategy that provides “the operational and financial flexibility you need.”
Timely, incisive articles delivered directly to your inbox.