Looking Ahead: Expanding the Power of Supply Chain Finance to the Mid-Market

Looking Ahead: Expanding the Power of Supply Chain Finance to the Mid-Market

By PJ Bain • Published July 12, 2021 • 4 minute read

Supply chain finance is a powerful tool to improve cash flow, enable transformation, and promote stability throughout the supply chain. It’s impossible to ignore the massive shifts occurring in virtually every industry. From automotive and food to retail and energy (and beyond), business as we know it is changing – and those changes demand capital.

PrimeRevenue is meeting that demand. More than 30,000 organizations across more than 80 countries leverage PrimeRevenue’s solutions to accelerate cash flow. Currently, we process $250 billion in payment transactions annually and our diverse, multi-funder network has grown to include more than 100 bank and non-bank partners.

Broadening the Reach of Supply Chain Finance to the Middle Market

Basketball legend Michael Jordan once said: “Earn your leadership every day.” For PrimeRevenue, that means more than just growing financially. It means bringing the power of working capital optimization to a greater number of companies and their suppliers – particularly those in the mid-market.

It’s important to note that the term “mid-market” encompasses a wide range of companies – anywhere from $100M to $2B in revenue by some definitions. By and large, these companies are hungry for growth but struggle to access the large sums of liquidity required to tackle transformation initiatives that will help facilitate growth.

Historically, funders have viewed mid-market companies as a risk when compared to their enterprise counterparts. This presents a serious challenge for, let’s say, a $400M company looking to grow into a $1B company. While an enterprise-sized company may have the cash to grow through expansion or acquisition, businesses in the mid-market often must borrow. Not only does this drive them further into debt and limit operational agility, borrowing for mid-market companies also typically carries a higher interest rate.

This signals one of the reasons why medium-sized businesses have traditionally been underserved by supply chain finance providers. Many providers rely on a single source of funding that lacks motivation to support companies that are privately owned, unrated and/or sub-investment grade. Others simply don’t view it as a profitable market.

Another reason is mid-sized companies often do business with fewer and smaller suppliers, meaning these transactions also tend to be smaller in size and volume. A supply chain finance program serving a mid-sized business is typically smaller than one serving an enterprise-sized company. (Quick aside: some medium-sized businesses work with giant suppliers. In these cases, the business doesn’t always have the leverage to negotiate payment terms. Supply chain finance can be instrumental in providing this leverage!)

But the fact remains that a majority of growing mid-market companies are optimistic about future growth and believe the worst of the recent volatility is behind them. According to the National Center for the Middle Market’s Q4 2020 Middle Market Indicator study, the middle market overall expects a return to modest, positive growth in 2021. Furthermore, the number of companies that expect to expand in 2021 and/or open a new plant or facility is up. So the question becomes: how do these companies overcome the size and risk factor to get the cash they need to stabilize, grow, and transform their businesses?

Funders Showing Revived Interest in Mid-Market Assets

At PrimeRevenue, we see this challenge as an opportunity – something our client roster can already attest to. Serving medium-sized businesses isn’t a natural fit for every supply chain finance provider. It requires unique operational capabilities and scalability.

Diversity in funding sources is key. Because we have the largest pool of funders of any supply chain finance provider, we are not saddled with the restrictions that typical bank-led programs or smaller providers are faced with. This enables PrimeRevenue to provide a broader range of companies access to a more diverse mix of funders that best suit our clients’ needs. In order to expand our supply chain finance solutions to better support businesses below the $2B mark, we continue to attract new funding sources with varying appetites for risk.

We’re also happy to share we’re seeing a trend of renewed interest in mid-market assets. While we saw limited liquidity available for mid-market companies in the early stages of the pandemic, we are now seeing increased appetite as economic recovery continues across many sectors.

Extending the power of supply chain finance to the mid-market is one of our proudest accomplishments, and we are just getting started. Our goal is to make sure every company – regardless of size – has access to efficient cash flow solutions and reliable, transparent payment.