Not Just For The Big Guns: Rethinking Supply Chain Financing

How can mid-market supply chain’s financing needs be met? That’s a question TradeRocket’s new funding agreement with Hitachi Capital aims to answer — chiefly by bringing working capital to mid-market firms by bypassing traditional routes and equity raises. TradeRocket CEO Jim Eckstein dishes on why it makes sense to look beyond big firms to serve working capital needs. Catch the conversation.

In the corporate world, growth is a mantra. But achieving growth takes more than just being timely to market with the right products or services (though, of course, those are keys to success). The old business maxim that it does indeed take money to make money still holds water.

With the continued growth of the FinTech sector and Software-as-a-Service, many companies are finding that their financing options extend beyond the purview of their local banking branches, and yet, there are still relatively untapped markets that could do well with streamlined, technology-driven methods of managing cash flow. That urgency may extend to the middle market, where firms, though sizable in scale and revenues — from several million dollars to as much as $1 billion — may, in fact, benefit from better supply chain management, especially when it comes to navigating cash flow.

One firm that stands at the intersection of supply chain finance and the middle market is TradeRocket.

In an interview with PYMNTS, TradeRocket CEO Jim Eckstein said serving the mid-market makes strategic sense. “In the mid-market,” he said, “there’s very few choices for companies to get access to funding that can have great impact on them and on working capital.”

Even though the mid-market is projected to grow relatively faster than other markets, “they lack the tools that the Global 1000 have,” he added. That leaves open a considerable market opportunity for TradeRocket, which has pointed to statistics from the National Center for the Middle Market, whose research shows 18,000 buyers in the U.S. spending $5 trillion annually across 18 million suppliers. That’s a lot of invoices and a lot of areas where cash flow can get bottlenecked.

As companies continue to grow, they may face cash constraints. But with growth can come cash constraints, and for many firms, the quandary becomes how to fund further growth, in an arena where “the choice is then between selling equity in the firm or raising debt.”

“In many cases, and you look at private equity, that’s been successful, but in the case of debt, often you may need additional cash flow to cover that.” Banks may actually perceive firms coming to them for debt issuance as a bad risk, Eckstein said.

Given those two less-than-optimal choices in the mid-market, said Eckstein, TradeRocket serves up a solution that exists neither as debt nor equity, with a financing platform and solution that can help deal with the invoices that are a daily part of corporate life and cash flow. Through the application, buyers are led to the TradeRocket supply chain finance portal, and suppliers are able to submit invoices, choosing among options as to how and when they get paid. TradeRocket Capital and Hitachi fund early payments. Through the ongoing linkup with Hitachi, said Eckstein, initial interest has come from the U.S. from firms in both the manufacturing and services industries. In addition, said the CEO, middle-market funders get information on suppliers that goes beyond what might be seen at traditional lenders, with metrics across TradeRocket’s platform that show productivity across accounts receivables, payables and cash maintenance (leading, of course, to better risk management and lending decisions).

Next week, TradeRocket will be among the participants in PYMNTS’ Innovation Project, held March 16–17 at Harvard University, where the company will participate in the event’s Innovation Expo. Eckstein said that the goal will be “to talk about innovation in financing, specifically through cloud apps, and the benefits that come through automation,” with an eye on educating attendees about the needs of middle-market firms that are helped by innovative supply chain financing.