Working Capital Solutions for Private Equity Portfolio Companies

The current economic environment provides substantial and unique challenges for private equity firms and their portfolio companies. Supply chains remain disrupted, putting pressure on firms to find adequate solutions. Companies remain focused on sources of liquidity, cash management and cost reduction to effectively navigate the waters of these challenging times.

How to create additional liquidity
without increasing leverage

Liquidity is paramount to success right now. A front of mind solution has been to draw down on lines of credit or utilize other debt financing solutions. Given the already high leverage of many portfolio companies, this may not be optimal or even feasible. That leaves a company looking for other solutions. Two of these provide liquidity without changing debt levels. Supply Chain Finance and Invoice Financing are programs that provide attractive solutions. They provide improvement in working capital for portfolio companies without incurring additional debt or negatively hampering relationships.

Cash management improves immediately
and creates a higher baseline

Whether your portfolio companies utilize AR Financing or Supply Chain Finance, cash management and liquidity improves.

With AR Financing, LSQ can make immediate payments to your company for outstanding Invoices that it has with its customers. Customers will then pay LSQ on the due date. Cash balances increase based on payments from LSQ certainly adding to liquidity. AR financing is typically a better solution for portfolio companies with smaller revenue but with strong growth potential. AR financing can be one of the catalysts that enable that growth.

With Supply Chain Finance, we provide an ability for your portfolio companies to extend payment terms to its suppliers while offering them LSQ’s FastTrack payment solution for early payment of invoices. Cash can then be held on the balance sheet to provide a higher balance or be used for other strategic needs for the portfolio company. Supply Chain Finance has had the most success in Middle Market and above sized companies, so that the full opportunity for success can be realized.

With a focus on cost reductions in a tough environment,
a solution must not require large upfront fees/costs

LSQ prides itself on its leading edge yet simple technology. Our team of engineers have designed systems that are easy to use and require minimal if any upfront costs by the portfolio company. Our data and risk teams provide a much more streamlined and hassle free approach that provides us with higher confidence on the quality of the transactions going through our system. LSQ also has extensive experience underwriting credit risk and managing invoices and collections. We’ve been in business for over 20 years and have funded more than $25 billion to businesses while managing over 130,000 B2B relationships.

Aren’t these solutions hard to implement and expensive?

Because we are not a bank, our financial requirements are less onerous than what you would encounter from a bank. High upfront costs, piles of paperwork, and extensive supplier underwriting are more of the norm with bank programs. In addition, many banks and other Supply Chain finance providers rely on outdated technology and under-commit to the essential work of supplier onboarding.

Because of our focus on technology, LSQ’s costs (both monetary and labor related) are minimized. Our platform allows a straightforward experience which simplifies supplier onboarding and encourages stickiness. Our clients also get access to real-time data and credit tools which can help them make data-driven business decisions.

A solution that benefits all

For a program to be truly successful, there should be benefits for all parties involved. With supply chain finance it is a win-win for all involved. The Private Equity firm’s portfolio sees immediate improvement. Portfolio companies see an increase in working capital and other metrics, with more options on how to deploy increased capital. And suppliers become healthier by having increased availability of cash earlier.

To learn more about debt-free working capital solutions for your private equity portfolio company, contact LSQ.