by LiquidX
The global economy continues to challenge companies across business sectors. Delayed payments and disruptions to cash flow have made B2B companies seek solutions to regain their footing. Accounts receivables (AR) has seen a rise in importance as one of those solutions, with 83% of owners and C-level executives believing their AR teams have become more crucial to their business’s overall success in recent months.
AR financing is an alternative form of commercial finance offering corporates access to working capital fast. The process works by selling unpaid invoices for cash advances. When managed properly, AR is a dynamic finance tool that enables corporates to free up cash, increase sales and pursue strategic business endeavors.
A lot of corporates that don’t have extensive experience with AR may miss out on areas of opportunity within your business. As AR becomes a lifeline for many, it’s more critical than ever to work with experts who know the industry and can help you leverage strategies you may not be aware of. Below are a few of those strategies and how they can benefit your business.
Taking Liquidity to Free Up Cash
When corporates take additional liquidity from receivables discounting, they then have the money to grow their business. Taking liquidity happens when you buy on the ask and sell on the bid. Its key benefit is getting faster fills since you aren’t waiting for a counterparty; rather, you are being serviced and paying for it.
A lot of corporates tap into untrapped cash to make strategic business purchases (such as real estate) and most notably pursue mergers and acquisitions. M&A can give corporates a larger market share and better access to industry talent, and enables them to break into new markets. PwC’s 2023 Global Treasury Survey noted M&A among the top priorities for CFOs.
Leveraging Interest Rate Arbitrage to Lower Financing Costs
Changing interest rates can significantly impact asset prices. When these asset prices don’t change quickly enough to reflect the new interest rate, it opens the door for arbitrage. Savvy professionals use sophisticated algorithms in advanced trade finance software to discover and exploit complicated arbitrage opportunities.
One opportunity is where corporates with higher yields and high ratings as sellers are able to trade investment-grade obligors at a lower yield than they’d be able to borrow from an outstanding loan. They can do this rather than use their loan facility to discount or effectively borrow in order to improve their cash position internally. This is often considered a cheaper way of financing.
Increasing Sales by Opening Credit Capacity
Open credits are financial arrangements between lenders and borrowers allowing borrowers to access credit repeatedly up to a specific maximum limit. Experienced traders know opening the credit capacity can increase revenue.
As an example, if you’re selling to a company and your internal credit limit is $50M on a secured basis and you have credit insurance for another $50M, that’s additional credit coverage on the company that you don’t have the appetite for internally. In using insurance, you can recognize an increased return because you’re able to offset the credit work to a third-party funder and still double sales ($100M) to the company without taking the risk. You’re able to take the receivable off your balance sheet, reducing the impact of bad debt on your financial performance.
Maximizing Success with Guidance from Experts
When looking at restructuring your accounts receivables, it’s important to work with experienced trade finance professionals who know where to identify areas of opportunity. LiquidX works as your partner, providing advisory support to ensure you are making the right decisions for your business. We pair our knowledge of this industry with our holistic suite of working capital solutions. Our InBlock software leverages machine learning, AI and OCR for client onboarding, data analysis, cash forecasting, payments and more.
To learn more about our services and request a demo of our software, click here.
