Overcoming Payment Challenges in Consumer Goods with Creative Financing

Matt DeBernardo

Last Modified : Mar 28, 2024

Fact-checked by: Bruce Sayer

In the consumer goods sector, navigating account receivable (AR) challenges is critical for maintaining financial stability, operational efficiency, and strong supply chain relationships. These challenges often disrupt the entire production process, leading to difficulties in managing cash flow and potentially jeopardizing customer satisfaction. Among the primary challenges faced are fluctuating payment schedules and extended payment terms. As consumer demand fluctuates and production costs rise, consumer goods companies are increasingly focused on optimizing their accounts receivable management to increase cash flow.

Here’s what you need to know about the accounts receivable challenges consumer goods businesses face today and how creative financing from alternative lenders can provide relief and support.

Understanding the challenges

To remain competitive, many consumer goods companies extend payment terms to attract and retain customers. However, this strategy often increases cash flow gaps caused by fluctuating payment schedules. In addition, the disruptions brought about by the pandemic have intensified the trend of struggling retailers, wholesalers, and distributors delaying invoice payments to improve their own cash reserves. As a result, consumer goods companies continue to face financial shortfalls amid a low-growth economy.

Risks associated with AR challenges

Extended AR challenges can severely constrain a company’s ability to meet its financial obligations, leading to disruptions in operations and potentially tarnishing its reputation in the market. Ultimately, the most significant risk with AR challenges is the erosion of your company’s ability to effectively manage cash flow, leaving the business vulnerable to insolvency and potential bankruptcy. According to SCORE (the Service Corps of Retired Executives), cash flow problems are the number one reason for most business’s failure.

The creative financing solution

Amidst economic pressures, many consumer goods companies turn to business financing to improve cash flow, especially during rapid growth or economic uncertainty. However, traditional lenders and investors have tightened their grip on the credit market, restricting access to conventional financing avenues as they seek to mitigate risks. The tightening has left many facing credit restrictions on existing bank loans while others struggle to secure new credit facilities. As a result, consumer goods companies increasingly seek alternative sources of funding.

Alternative lenders offer a distinctive financing model compared to the traditional credit market. Instead of solely relying on a borrower’s credit history and performance metrics to evaluate eligibility for a business loan, alternative lenders focus on the quality of the business’s assets. Consumer goods companies with tangible assets, such as inventory, equipment, real estate, and creditworthy accounts receivables, are well positioned to qualify for alternative financing solutions.

By leveraging assets as collateral, leading alternative lenders can extend credit lines up to $50 million to undercapitalized and underperforming businesses. This approach provides much-needed liquidity and flexibility, enabling consumer goods companies to navigate cash flow challenges and pursue opportunities confidently.

How alternative financing can help overcome AR challenges

Alternative lenders leverage advanced technology to access vast databases and analyze thousands of credit-related data points to reveal a business’s untapped asset values and collateral strengths. Through the advantages of asset-based lending, alternative lenders increase a business’s liquidity by converting tangible resources into readily available working capital.

Asset-based lending can help companies access capital quickly, supporting their working capital needs and facilitating growth with minimal loan covenants and less stringent lender oversight. This creates a more flexible funding arrangement that allows businesses to allocate funds autonomously according to their needs. Whether its to maintain regular cash flow, access additional capital to invest in operational efficiencies, or fuel growth initiatives, asset-based lending provides the essential capital businesses require precisely when needed.

Additional benefits of alternative financing

Swift access to working capital can be a game-changer for many consumer goods companies. Unlike traditional banks, which may take weeks or months to process a credit application, alternative lenders typically qualify a borrowing company within days. Once approved, these lenders streamline the onboarding process and provide dedicated account management, ensuring expedited access to funds.

Beyond the accelerated speed of funding, additional benefits of alternative financing include:

• Customized financing terms: Alternative lenders tailor financing terms to align with the specific requirements and circumstances of the business. This flexibility allows companies to structure financing arrangements that best suit their needs, whether it’s adjusting repayment schedules or offering variable interest rates.
• Credit expansion: Alternative lenders can enable businesses to expand their credit capacity, providing the financial flexibility needed to capitalize on business opportunities, such as market expansion, product development, or strategic acquisitions.
• Enhanced financial stability: Alternative financing enhances financial stability for consumer goods companies by providing access to flexible financing options. This stability can help businesses, especially during periods of economic uncertainty or when navigating seasonal fluctuations in cash flow.

Leading alternative lenders offer an array of additional benefits. These lenders prioritize customer-centric services that go beyond traditional bank financing. With extensive industry expertise, alternative lenders offer valuable insights, trends, and information to inform strategic decisions. Leveraging advanced technology, they continuously monitor the credit landscape, providing the intelligence needed to assess a potential new customer’s ability to pay their invoices, reducing the risk of encountering bad debt.

Choosing the right financing partner

When selecting the right alternative lending partner for your financing needs, making a well-informed decision is critical to meeting your specific business requirements. Here are a few essential considerations to ensure you partner with the right alternative lender.

What financing options are available?
Reputable alternative lenders manage a broad range of financing options to maximize access to credit. Various forms of asset-based lending, ranging from accounts receivable financing to ledger financing, provide more ways to access capital beyond what traditional lenders typically offer. It’s important to understand the lender’s financing solutions and assess whether untapped capital sources still need to be explored.

What are the lender’s capital resources?
While a lender may appear to be an ideal financial partner for your business, it is essential not to rush into a lending agreement. Ensure they have the financial resources to meet your company’s immediate and future capital needs. Leading alternative lenders have secure financial backing, ensuring the delivery of financing solutions that align with your company’s growth trajectory.

Does the lender understand your business?
A lender must have an in-depth understanding of your business model and industry to address complex issues and overcome obstacles effectively. With this background, a solution-focused lender will leverage their expertise, innovations, and flexible financing solutions to overcome obstacles and deliver the resources needed to achieve financial stability for your business.

Are there any hidden costs
Trust, transparency, and a straightforward approach to business dealings is an absolute must in establishing a solid relationship. Ask the lender if there are any hidden costs – gauging their response often reveals much more than just pricing information.

Choose carefully when selecting a lender to partner with. The right relationship can streamline processes and efficiencies, such as overcoming cashflow gaps resulting from AR challenges.

Conclusion

Consumer goods companies must effectively navigate accounts receivable challenges to maintain financial health and operational efficiency. Business financing is typically used to boost cash flow, particularly amid rapid growth or economic challenges. As traditional lenders tighten their grip on the credit market, alternative financing emerges as a strategic solution by leveraging untapped asset values and collateral strengths. This approach addresses cash flow gaps and offers expedited access to working capital, tailored financing, and enhanced financial stability.

Choosing the right alternative lender is critical when arranging flexible business financing. Do your research, ask questions, and assess lender suitability to ensure your financial partner aligns with your business needs for a collaborative and streamlined financial relationship.
To learn about our creative approach to asset-based lending for consumer goods companies, contact us today.

Key Takeaways

• Consumer goods companies must prioritize efficient accounts receivable management to optimize cash flow, especially during fluctuating consumer demand and rising production costs.
• A comprehensive understanding of the challenges and risks associated with cash flow issues, such as fluctuating payment schedules and extended payment terms, is essential for finding effective solutions.
• Many consumer goods companies rely on business financing to improve cash flow. As traditional lenders and investors tighten their lending criteria, alternative financing emerges as a strategic solution.
• Choosing the right lender to partner with is critical to streamline processes and overcome cash flow gap challenges resulting from accounts receivable issues.

Matt DeBernardo

Matt DeBernardo, SVP, Business Development Officer, is an accomplished finance professional with over 15 years of experience in alternative finance. In his role, he is responsible for structuring creative, flexible asset-based lending solutions that maximize working capital.

Prior to joining eCapital, Matt held senior positions at Alterna Capital and LSQ, where he was a top producer. His commitment to the alternative finance industry is evident in his active participation in the Secured Finance Network as a board member for the Florida chapter, and a member of many other industry organizations such as the Association for Corporate Growth and the Turnaround Management Association.

Matt earned a Bachelor of Science degree (honors) in Finance from Bentley University and is a graduate of the General Electric Financial Management Program.