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Unlocking Liquidity in Your Accounts Payable

Eight months after the first pandemic shutdown, many companies are facing a need to inject cash into their operating cycle. In search of capital, a company treads a slippery slope through dwindling options. Vendors are often a first source of credit but offer a brief reprieve before creating duress in their own operations. By this time, credit may be running thin and a traditional banker will be reluctant to grant an over-advance.

With liquidity constrained, a company continues to move on down the capital stack. Equity or mezz debt are rarely good options for solving a temporary cash flow problem.

The Finance Department can use non-traditional short-term trade finance alternatives include factoring, supply chain finance, purchase order finance, and merchant advances to fill the liquidity gap. Trade finance can be costly, may disrupt existing bank relationships, and upset vendors, who may need to accept unwanted discounts or other term concessions.

How does a company find a solution that is palatable?

Accounts Payable Finance (APF) is an emerging alternative, whereby the lender steps into the role of the trade creditor by paying the vendor in full and bridging the terms to the buyer’s desired date of payment. For example, at Tradecycle, we provide a portal for the buyer to upload the vendor’s invoice within terms for payment by Tradecycle. The buyer may select up to 90 days to repay. Thus, drawing more capital into the company’s operating cycle without disrupting the interests of any of the stakeholders.

APF is accretive to the senior lender, as the APF lender is unsecured, and a “trade creditor.” It is not considered funded debt, eliminates the need for an over-advance, and does not disrupt any covenant calculation. Additionally, APF can be used to support “in-transit” inventory purchases until they are eligible to be leveraged through a traditional line of credit. Equity holders like APF because the product is quick and easy to obtain, addresses short term needs, and does not dilute their ownership.

Accounts Payable Finance can play a key role in lifting the value for all stakeholders and provides the critical working capital needed to boost inventory purchases. By working in tandem with the company, senior lender, and equity holders, Accounts Payable Finance gets vendors paid within terms, provides the company with needed working capital, protects the interest of the secured lender, and creates accretive value for the equity holders.

Paul Count is the Sales Director for Tradecycle Capital, an Indianapolis-based non-bank, trade finance provider that focuses on working capital solutions for middle-market companies. Paul can be reached at 317-509-2647 or