Careful planning helps businesses of all sizes mitigate risk, especially when it comes to accounts receivables. A global pandemic combined with social unrest led to increased uncertainty and indecision from customers and prospects, making forecasting especially challenging. Companies worked to manage cash flow ambiguity as decision-making slowed and businesses fought to stay afloat.
As we begin this year, we are seeing signs of stabilization with effective and efficient cash flow management continuing to be a universal business objective. For years, invoice factoring has been the standard practice. In the factoring model, account receivables originate by the seller or merchant. Factoring produces the invoice in anticipation of selling the account receivable after the transaction is completed. If the seller or merchant is able, invoice financing occurs in exchange for immediate cash flow.
The invoice financing practice is successful in helping companies gain instant access to cash, which makes it a valuable and common way of doing business.
Improving upon the model, Credit as a Service is a factoring alternative that gives companies maximum invoice financing control. Credit as a Service (CaaS) automates the process and is superior to invoice factoring. Here are a few ways MSTS is leading the way.
Initiating a Unified Accounts Receivable Process
CaaS originates the account receivable and produces a white-label invoice to present a seamless brand experience to customers. Similar to how credit card companies operate, CaaS administers underwriting to the buyer, authorizes the transaction, issues the invoice and manages the collection of accounts receivables.
Taking on Risk of Credit and Collections
Using advanced technology to manage credit and collections gives organizations the freedom to focus on delivering products and services to customers, without having to deplete valuable financial resources. With CaaS, companies offload credit risks completely. While with factoring, protection to the seller is absent, often requiring credit insurance at an additional expense.
“Credit-as-a-Service was developed to keep businesses of all sizes ahead of the curve with business intelligence tools that decrease DSO and increase revenue and purchasing power,” said MSTS President Brandon Spear. “In a time that has required so many businesses get comfortable with additional risk, it’s encouraging to know there are tools to expertly manage accounts receivables.”
Understanding Invoice Reimbursement
There are subtle differences between CaaS and factoring when it comes to invoice reimbursement. CaaS disburses 100 percent less a transaction fee in 48 hours. Factoring typically will disburse 70% to 80% immediately and then disburse the remainder, less a factoring fee, when the invoice is paid in full. Factoring keeps the risk with the company, while CaaS assumes the risk, giving businesses peace of mind and the autonomy to focus on delivering value directly to their customers.
Increasing Access to Credit
With CaaS, organizations gain access to an unsecured credit line, which means the money is available nearly immediately to help keep business running smoothly. With factoring, there is the potential for a lien on assets, which may place restrictions on being able to sell accounts receivables and potentially pose challenges to gaining immediate access to funds
When a business signs on for CaaS, there is a one-time underwriting process for the buyer. This gives buyers transactional freedom to use their credit limit at the merchant in a closed-loop B2B payment ecosystem. In contrast, a factoring system typically does not underwrite the buyer, but instead it underwrites the seller or merchant, which means assessing customers’ credit strength and viability is an ongoing activity.
Advancing the Accounts Receivable Process with Credit as a Service
CaaS provides the next step in the evolution of accounts receivable workflow, taking processes to the next level. It is a cash flow management solution to help grow business, reduce DSO and gain real-time transactional approval providing some reliability after a year filled with uncertainty.