PE is the new AIM
Going public, and listing a company on a stock market has, for many years been seen as the de facto route to raising the capital to scale and grow a business. A recent report, however, suggests that over the last decade there has been a drop of 2% per year in the number of listed companies.
The dominant factor fuelling this trend is the number of Private Equity firms now operating worldwide, with an ability to offer easy access to capital for growth.
Building Long Term Value
The art of the PE investor firm is to buy a controlling stake in a business and then improve its long term value by applying financial rigour to improve the company’s efficiency, and this often starts with two areas of finance: Accounts Payable and Accounts Receivable. Tightening up on spending and strengthening receivables to liberate working capital is crucial to this endeavour. Hence, in our world, we often deal with businesses that have recently had PE investments or are on the cusp of change.
Data Interconnect offers the means to achieve long term value creation through the Corrivo AR platform. Our partners provide the equivalent AP platform and now, a third party is making Corrivo even more attractive to PE investors and the companies in their charge – through invoice finance.
A Platform is for life, not just for Christmas
The Corrivo Accounts Receivable and Credit Control platform creates a virtuous circle of value creation and profitability. It pays for itself, often within the first three months, simply by the amount of operating expenditure it saves a business and then more in the form of reduced written off debt, improved receivables turnover and thus improved availability of working capital.
Over time, all the key metrics used by Receivables managers can be improved, which is where the greater long term financial benefits accrue. Profitability can and will improve with AR automation, but using a platform like Corrivo is a route to long term value creation, not short term profit.
Invoice Finance – The Rocket Booster to growth
A number of the sectors experiencing high growth, such as construction, FMCG and eCommerce are also affected by supply chain issues including a lack of funding. Late payment figures published by the Chartered Institute of Credit Control (CICM) illustrate the link between cash flow issues in the supply chain and late payment of receivables.
The solution – growing more popular with our clients, is Invoice Finance – providing firstly the company’s buyers (customers) with access to funding on an invoice by invoice basis, giving them longer to pay at little extra cost. The second option funds the suppliers themselves, the company under the care of the PE investor.
In this form of invoice finance, suppliers get paid on day 1, while customers pay on standard or extended invoice terms as usual. The full invoice value is funded, which creates the working capital needed to sustain the company’s growth trajectory. The fees are lower than those associated with other types of lending and as this is seamlessly integrated with the company’s Accounts Receivable platform the effort is minimal.
Targeting Finance Processes
AP and AR automation are obvious targets for improvement by new investors. Introducing automation to these back-office processes can yield significant gains over the 1-3 year horizon and put in place the infrastructure capable of elastic growth.
PE investment – AR investment
We have seen strong links between the companies that have had access to private equity and a thirst to implement Accounts Receivable and Credit Control automation. Integrated invoice finance, as opposed to the riskier and more rigid types of asset finance and factoring, is now of growing interest to businesses that wish to build long term value and stickiness with their customers.