Successful Special Situation Financing

Introduction:

The ability to provide special situation financing allows a bank the flexibility to enhance their overall yield and provide a much-needed service to their business clients. Having a working capital solution that can accommodate for special situations is of paramount importance. This feature can be very valuable to the clients utilizing the program, since as they go about their daily business activities, occasionally they run into special situations or opportunities requiring invoicing and/or pricing strategies outside the "norm" of their operation. Unfortunately, more often than not, this leaves the business owner in a quandary because the utilization of their existing credit facility does not enable them to take advantage of these opportunities.

The eRevenue® web-based software platform has the ability to perform per-invoice or special situation financing. When a client is set up in the eRevenue® system, a default pricing structure is entered reflecting the contract and terms agreed to at closing. However, since each client is allowed to have multiple pricing profiles set up in the system, the bank can add as many additional pricing profiles as needed. These additional profiles enable the handling of any special situations that may arise after the default pricing structure has been established.


Special situation pricing allows the bank to structure the advance, and subsequent purchase of the receivable, to fit the particular invoice or special program that the client is offering to their customer. These profiles, once they are established in the system, are kept indefinitely and can be used whenever any special situations may again arise. This allows the bank to have, at their fingertips, these pricing strategies that have been approved as special situations have arisen. These profiles also allow the client, working in conjunction with their bank, the freedom to price for special situations. To illustrate, please see the following two examples.

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

Real-Life Application #1:

A manufacturing client of outdoor grills had a large inventory surplus following his spring season. In an effort to recover costs that were tied up in his finished goods inventory and to make room for present production, he offered a special close-out inventory sale to one of his large retail customers. The terms of this invoice did not match the default pricing structure that had previously been approved by the bank and entered into the eRevenue® system. The bank entered in a special pricing profile for this particular invoice. The advance rate was increased from 85% to 90%, the discount rate was fixed for 60 days, and interest was charged on the amount of the outstanding advance at Prime+2 on a daily basis from the time the advance was made until the ultimate payment was received from the customer.

This special situation pricing profile allowed the client to liquidate his inventory and immediately receive the working capital he needed. Additionally, he was able to offer preferred pricing and terms to his customer for this close-out inventory. The bank was able to significantly help a valued client while enhancing their overall yield with a verified invoice to a creditworthy customer.

Real-life Application #2:

This example involves project financing. An architect client of a bank was routinely involved in commercial projects. This commercial project work had differing margins of profit on each different type of project. This presented a problem for structuring a pricing schedule on an invoice funding program for this client, due to difficulty in establishing a general advance rate for all invoices submitted.

The bank solved the problem by moving the client to the eRevenue® system where the flexibility of the eRevenue® system to deal with special situation financing allowed the bank to have project financing configurations set for each of the client's differing types of projects. As previously entered profiles were applicable to new projects based on margin and timing similarities, the profiles were available to be used. This allowed the architect to receive advances on the work as it was completed, which provided working capital to pay direct project costs, as well as receive some of the profit margin allowing the business to continue to thrive and grow.

Win - Win:

In both examples, you can see that the eRevenue® web-based software platform provided the flexibility to meet the client's needs, while at the same time structuring profiles that conformed to the bank’s credit culture.