Introduction:
One of the great things about Working Capital Lending is that it gives you, the bank, an opportunity to really get to know your commercial client's business cash flow needs. Understanding how your client’s business cash flows month-to-month is essential in structuring a working capital program that meets their needs and complies with your credit culture. As you know, 's Working Capital Solutions allow you complete pricing flexibility so you are able to specifically meet the needs of the variety of businesses you work with. The following is a real story from one of our Partners.

(For privacy purposes, the name of the bank and their client has been changed.)


Real-life Application:
Southern States Funding had a prospect, Textron Paint, who was on an accounts receivable purchase program with their bank. The bank had a flat discount rate affixed to every advance and forced Textron to take an advance each time they brought in invoices. This proved to be very expensive for Textron Paint, and as such, they wanted off the program.

Southern States saw an opportunity to obtain a great account and took the time to sit down with Textron and study their business cycle. Southern States saw very quickly that it took Textron’s customers approximately 60 to 65 days to pay from the date the invoice was received. Each time Textron brought in invoices, they were being charged a flat 3% fee. Their business had some pretty tight margins and as such, that 3% was felt.

Although they had access to working capital, this program proved to be too expensive for Textron to efficiently utilize. Southern States noticed that this client invoiced twice a week at which time they would drop the invoices off at the bank and an advance was automatically created. However, in looking at Textron’s use of the advance money, Southern States realized that many times they were receiving the advance but did not have to pay out the funds to their suppliers for one to two weeks. This was an inefficient use of working capital.

After studying the business, Southern States came up with the following solution:

• Textron Paint was moved to Southern States, and a TBF program administrated by was designed specifically to fit their needs.
• Textron was taught to "season" their invoices. In other words, they were trained to submit their prepared invoices to 's Processing Center as usual, but utilizing the flexibility of 's system, they learned to electronically request an advance only when they actually needed to pay their suppliers.
• They were moved from a flat fee schedule to a graduated fee schedule.

Thus, using the flexibility and pricing structure offered by the bank, via , Southern States was able to set up a way for the velocity of money to work for both them and for Textron.


Win - Win:
This deal structure enabled Southern States to obtain a very good Transaction-Based Financing (TBF) customer by structuring a pricing schedule that worked for the business cycle of Textron Paint.

By not taking an advance until the funds were needed, Textron Paint was shortening the time it actually took for the invoice to ultimately pay. Since they were now on a graduated discount fee, this shortened time significantly reduced their per invoice cost. Additionally, Textron had every incentive to submit all their invoices, knowing full well they were "seasoning" and the invoices would be available to them at the time they needed an advance.

As long as an invoice was in the system and not advanced upon, it did not accrue any fees or charges. When the advance was created, an initial discount fee of 1% was charged. Additionally, for each 10 day increment that the advance was outstanding, the discount fee would go up an appropriate amount of basis points. If an invoice took longer to pay than it should, then the amount would continue to rise, thus protecting Southern States from having a situation where stale dated invoices would erode their yield.

Conversely, Textron had a very clear way to hold down their per invoice cost by managing the timing of the advances and the particular invoices they chose to advance. When Textron needed cash-flow, they electronically selected the oldest invoices for advance. The advance was completed, and the funds placed into Textron’s account.

The invoices selected, since they had already been in 's system for up to 30 days, were only outstanding for an additional 30 days before ultimate payment was received from their customers. As such, their discount fee was reduced from a flat 3% to approximately 1¾ percent.

The following illustration is based on invoices that pay in 60 days from their invoice date:


Textron was so happy with the ability to control their cash flow they referred three other businesses to Southern States, and similar programs were structured for them.


Summary:
provides the bank with a variety of ways to price for their commercial clients. Since no business is exactly alike, encourages their partner banks to work with their clients in structuring the proper pricing scenario for that client's individual working capital needs.

This is just one example of how pricing flexibility and the capabilities brings to the table can work for the benefit of the client and the bank in structuring a long-term financial relationship.