The Alchemy Of Turning Invoices To Cash

For small to mid-sized businesses, the day-to-day management of cash flow can be a difficult, and at times precarious, task. Among the most pressing concerns can be the management of accounts receivable and making sure the flows into the corporate coffers are timely.

Based in Massachusetts, Avidia Bank, which lends to SMEs, has introduced a new accounts receivable solution, with an emphasis on ease of use and speedy funding via online interaction.

The concept itself is rather simple: Known as BusinessManager, an SME’s bank buys up outstanding receivables, allowing customers to get cash in hand via direct deposit while invoices remain unpaid and, in turn, handle their payables.

The BusinessManager announcement comes on the heels of Avidia’s introduction of its cloud-based payments tool, known as Avidia Pay, which lets SMEs accept multiple credit card payments.

In an interview with PYMNTS, Daniel Provencher, assistant vice president of Avidia’s commericial relationship operations, stated that for SMEs, “cash flow is what leads to growth and what allows businesses to go to the next level in their development.” Yet, along the way, there are pain points where customers do not pay on time or where cash is needed to cover expenses, hire additional staff or even take advantage of supplier discounts. These examples, said Provencher, offer up the types of opportunities that can be lost to a business, in some cases, permanently, and may mean that a company could be hobbled as it tries to execute on its market strategy.

Of course, automated and online processes such as those found with Avidia mean that the tedium and long wait associated with paper-based applications at traditional lenders are bypassed. The process works as the SME’s chosen bank purchases the AR at a discount, funds are deposited with the SME and information tied to the receivables activity (aging, collections, etc.) is exchanged through BusinessManager’s secure site.

For Avidia, according to the executive, the areas where such financing can see a “hot spot,” in terms of demand across industries, is from SMEs in growth mode, with less than 25 employees, and some industries of note include manufacturing, transportation and, especially, solar energy firms.

As is the case with any platform that handles fund flows, security is of great concern among SMEs. Provencher said all payments that go to cover receivables go to a lockbox and are held there until being released.

In reference to the rates charged, Provencher said that they are markedly cheaper than those seen with traditional lenders. There are no setup fees, monthly fees or application fees that accompany the receivables financing. For those receivables that are financed and outstanding for 15 to 30 days, the charge is typically a rate of 1.5 percent, with a boost to 3 percent on 60-day receivables outstanding (or greater). Anything over the agreed-upon terms incurs an additional two basis points per day, which Provencher said “keeps the borrower’s eyes on making sure that they are collecting payments and are actively involved in doing so.”