Vendor Spotlight: 4 Scenarios in which Quartix is a Quick Fix to your Liquidity Position
Most companies have at least one relationship bank that provides them with secured credit lines. Those facilities are often sizable, inexpensive, and cover most of the external funding needs of a company.
However, having flexible options to accelerate collection of customers’ receivables may come in handy. Especially if these options do not require placing any collateral, signing of any documents, or committing to pay fixed long-term fees / costs.
Let's take a look at 4 situations whereby having options to accelerate one of your customer’s invoices in a way that does not conflict with your secured bank credit lines may be useful to you as a vendor.
Scenario I: Overcoming Seasonal Peaks or Temporary Cash Flow Gap
Seasonal peaks or unforeseeable short-term events can be a "stress test" to a company's cash flow and may consume its secured bank lines, triggering a punctual, immediate and often short-term need for extra cash.
Bank lines may be restrictive and prohibit a 3rd party funding alternative. In some cases, increasing bank lines capacity or obtaining 3rd party funding just to cover a 2-week cash flow bump isn’t practical.
An optional early payment channel that has no fixed costs may be a valuable tool to overcome those seasonal peaks, while minimizing the cost by selectively accelerating payments to provide just enough extra cash to bridge the gap.
Use case II: During Rapid Growth
During rapid growth, bank lines might not be enough to fund the growing needs of the company. Increasing a bank credit line or getting a line from another bank might take a long time, and the approval is uncertain. A funding shortage might hinder the company's growth. In these situations, an early payment option may constitute a valuable liquidity source to support the company’s capital needs on an ongoing basis.
Use case IV: Control Credit Exposure towards a Customer, Increase Sales
Most vendors set limits to the amount they can sell on credit terms to each of their customers, regardless of their creditworthiness. When such limits are exhausted, vendors often must go to through the unpleasant process of trying to accelerate payment on open invoices with their customer and / or are forced to ask the customer to pay cash for the new order. If neither of those options are accepted, the vendor may not only lose a new sale but also damage the relationship with its customer.
Having a non-recourse early payment channel at your disposal would give you, the vendor, the option to collect any open invoice whenever needed, freeing your customer’s topped-up credit limit and enabling new sales on credit terms.
Use case V: When Visibility is Needed
Digital, optional early payment options have a ‘hidden’ feature. They allow the vendor to view the approval status of its customer’s invoices, better predict future cash flow and have the ability to plan ahead.
Many vendors use this functionality while never accelerating a single payment. This way they are able to keep track of the approval status of their invoices as well as detect invoices that were not received or approved by the customer at no cost to them! In case they see the need to compensate for an eventual gap caused by delays in the approval of certain invoices, they may use the early payment feature to accelerate other approved invoices.
PS – interested to learn more about Quartix’s win-win vendor-finance solution? Let's talk!