Rounding out the business owner's strategic finance stack

The CFO stack, a comprehensive set of financial management tools, is crucial for businesses aiming to streamline their financial operations. Kanmon enhances this stack by providing embedded lending solutions that allow vertical software platforms to integrate bespoke, white-labeled lending products seamlessly.

Among the various tools in the CFO stack, invoice financing stands out. It offers businesses the capability to immediately monetize their receivables, thereby ensuring steady cash flow and enabling more robust financial strategies. This integration not only helps in managing finances more efficiently but also adjusts dynamically to meet the unique demands of different businesses, supporting them in achieving their financial objectives with precision and ease.

Cash management tools

The CFO stack represents an integrated set of financial tools specifically designed to optimize a company's financial operations and adapt to varying business scenarios. This suite equips chief financial officers and business owners with the resources to manage cash flow effectively, mitigate financial risks, and harness growth opportunities.

Addressing short term, working capital needs is a constant priority for strategic finance leaders in small and medium sized businesses, especially when they are growing. In order to address those needs, businesses lean into a wide range of tools, all of which comprise important components of their available credit. These include:

1. Invoice financing, which allows companies to immediately unlock the value of their receivables by getting paid upfront for invoices, thus eliminating delays and enhancing cash flow stability.
2. Invoice discounting, which provides an incentive for customers to pay their invoices early. By offering a small discount, businesses can accelerate cash inflows, which is crucial for maintaining continuous operations or investing in growth initiatives.
3. Trade credit insurance, which protects businesses against the potential non-payment of commercial debt by their buyers. It ensures that a company will receive payment for goods or services sold on credit, even if the buyer fails to pay due to insolvency or default.
4. Business credit cards, which business owners use to cover a wide range of short term expenses and accrue other benefits. Strategic use of business credit cards, even when used as a monthly charge card that the business repays monthly, also extends the time a business has to pay cash for those expenses.
5. Term loans and lines of credit, which offer business owners the ability to access larger funding amounts, typically for specific funding needs or as a safety net against cash flow volatility. As installment loans, with fixed repayment amounts, they also ensure that business owners can project their future expenses related to debt repayments.

Together, these tools, among others, form a robust CFO stack, offering diverse yet complementary mechanisms to support and enhance the financial agility of businesses.

Deep dive into invoice financing

Invoice financing is a financial tool that allows businesses to improve their cash flow by selling their accounts receivable at a discount to a financier, such as Kanmon. This arrangement gives companies access to the majority of the invoice's value almost immediately, rather than waiting for the normal credit terms to expire. Kanmon's solution integrates seamlessly with business operations, providing rapid liquidity without the burdens of traditional financing methods.

Here’s how it typically works: a business issues an invoice to its customer and then sells this invoice to Kanmon. Kanmon pays the business up to 90% of the invoice value upfront. Once the customer pays the invoice in full, Kanmon releases the remaining balance to the business, minus a small fee for the service. This immediate infusion of cash helps businesses cover operational costs, pay suppliers, and invest in growth opportunities without the delay of standard payment terms.

Utilizing Kanmon for invoice financing offers distinct benefits over traditional lending options like bank loans or credit lines. Traditional financial institutions often require extensive credit checks, collateral, and a long-standing financial history, which can be prohibitive for smaller businesses or those needing quick cash solutions. Additionally, credit lines typically come with a fixed limit, which might not scale with the business’s growing needs. In contrast, invoice financing with Kanmon is directly tied to sales, meaning the funding limit can grow along with the company’s invoicing volume, providing a scalable financial solution.

Overall, invoice financing as part of the CFO stack enables businesses to maintain consistent cash flow and financial stability, even during periods of rapid growth or uneven sales, ensuring that companies can continue to operate efficiently and plan strategically with more predictable finances.

Exploring invoice discounting

Invoice discounting is a financial strategy in which businesses offer a small discount to customers who pay their invoices early. This approach is particularly effective for improving cash flow, as it incentivizes quicker payments, reduces the wait time for receivables, and boosts liquidity.

For instance, consider a business that offers a 2% discount on invoices if the payment is made within 10 days of issuance, instead of the standard 30-day term. This modest discount can significantly speed up cash inflows. If a customer usually pays $100,000 per invoice, opting for early payment to save $2,000 is appealing. From the business's perspective, although receiving $98,000 instead of the full amount might seem like a loss, the immediate availability of cash often outweighs this minor discount. This cash can be used to manage daily operations, pay down debt faster, or invest in quick-turnaround opportunities, which might otherwise be missed.

Strategically, invoice discounting serves as a powerful financial leverage tool. It allows businesses to maintain tighter control over their cash cycles without taking on debt or affecting their credit ratings. By encouraging faster payments, companies can also reduce the administrative burden and cost associated with chasing late payments, making it a smart tactic for maintaining healthy cash reserves and fostering strong customer relationships.

Order-to-cash solutions

The order-to-cash process is a critical business function encompassing all steps from receiving a customer order to collecting payment. This sequence includes order management, fulfillment, invoicing, and payment processing, each pivotal for maintaining efficient cash flow and customer satisfaction.

Kanmon enhances this workflow by integrating its lending solutions into each step, particularly focusing on accelerating the payment stage. For instance, when customers are unable to pay early, Kanmon's embedded financial tools can offer immediate advances on receivables. This capability ensures that businesses maintain liquidity, even when actual payments are delayed.

The significance of an efficient order-to-cash cycle becomes particularly evident for businesses dealing with customers who have longer payment cycles. Solutions like Kanmon's enable business owners to stabilize cash flow while minimizing the risk of cash shortages that could impede ongoing operations or future growth. By streamlining and securing the receivables process, businesses can focus more on core activities and strategic growth rather than financial uncertainties.

Practical applications and case studies

Kanmon works with several partners in supply chain technology, showcasing a practical application of and consistent demand for embedded lending solutions in the real world. With an electronic data interface, these partners enable seamless invoice and inventory management between suppliers and retailers. By incorporating Kanmon's financial tools, these platforms ensure that financial transactions are as streamlined as the data flows, enabling quicker invoice settlements and improved cash flow across the supply chain.

Integrating these financial tools significantly enhances overall supply chain and financial management. For instance, the immediate financing of invoices reduces the cash conversion cycle, a critical measure for any business reliant on inventory turnover and sales. This rapid access to funds allows businesses to reinvest in operations, take advantage of bulk purchasing discounts, or address urgent financial needs without waiting for traditional payment terms.

Beyond retail and supply chain sectors, a wide range industries such as manufacturing, healthcare, and IT services also benefit from enhancing their strategic finance suite by incorporating Kanmon's products. In manufacturing, quicker payments could help manage production costs more effectively. Healthcare providers use these tools to handle unpredictable cash flows due to insurance processing delays. IT services leverage invoice financing to invest in talent and innovation projects, maintaining a competitive edge in a rapidly evolving industry. These examples illustrate the versatility and impact of Kanmon's solutions across various business landscapes.

Conclusion

The CFO stack, with its essential components of invoice financing and invoice discounting, offers robust solutions for strategic financial management. By adopting these integrated financial tools, businesses can significantly enhance efficiency and adaptability.

Kanmon's tailored, scalable financial solutions empower companies to streamline their financial operations, ensuring steady cash flow and enabling more focused growth strategies. Embracing Kanmon's innovations can lead to transformative changes in how businesses handle their finances, setting a foundation for sustained success and operational excellence.

If you’d like to learn more about how Kanmon helps software platforms that support small and medium sized businesses every day, we’d love to hear from you! Reach out at hello@kanmon.com!