After having the same conversation with another 3 publishers this week, I thought I would post my simple lesson in receivables finance and demonstrate just how powerful it can be to growing your business exponentially. Receivables finance is applicable to performance marketers, media publishers, app developers – really any business seeking a positive return on a media investment (ROI) in the form of lead bounties, increased ad dollars from greater audience/pageviews, or increased utilization/monetization in the case of apps. 

Managing the Float 

Although there are multiple variables at play, in most performance businesses must pay for media well in advance before collecting their revenues. For the most part, these pubs have great margins — 20-30% return on media spends – so what’s the factor most inhibitive to their growth??? Having sufficient cash on hand for media investment!  

Here’s a simple example: say a publisher invests $100,000 to on a search/display campaign to run in January. The pub must remit payment to its media source on January 1^st, knowing that there will be a $30,000 profit derived from such buy, however the pub’s terms with the marketer are net 30, so the check for $130,000 doesn’t arrive until March 1^st (assuming the check arrives in time). Then on March 1^st, the pub invests $130,000 and must wait until May 1^st for the $169,000 check to arrive ($130k x 130%) – and so on. In this method, at the end of the year, the pub now has $482k (assuming 100% of profits are reinvested). 

Investment return with and without Receviables Finance

Now, suppose the pub were to utilize a receivables finance line of credit. With such a facility, 70% of earnings are paid out within 5 days from the end of each month (Net 5). Since the for such a facility are so much lower than the ROI, it is highly profitable to the publisher, generating a 61% higher return. 

Let’s review the options 

OK, so it’s obvious that if you have more money to invest you can make more money – got it. However let’s run through the various sources of capital. 

1) Profits – Profits are great, however reinvesting profits is a slow growth path – I don’t think we want to be waiting years to be able to double our marketing spend 

2) Credit Cards – We’re talking personal recourse here if things don’t work out. Also, how many of us have credit cards with $1mil+ spending limit 

3) Bank Loan – They were hard to get 2 years ago, now they’re almost impossible. Very stringent requirements, massive paperwork, and still difficult to obtain. 

4) Equity – By far the most expensive form of capital out there. You should absolutely utilize all of your balance sheet (ie receivables) to grow your business as much as possible and garner a substantial valuation before selling off a single share (which presumably will be worth more tomorrow than today) 

5) Receivables Finance – No personal recourse, large funds availability, non-dilutive to equity. 

FastPay 

Whenever your business necessitates carrying a float (or said differently, a lag between when you need to payout vs. when you get paid), a receivables line (or what we call FastPay) can provide a way of converting high margins into cash.