Sarsha Adrian wants to get small businesses out of the lending business and help banks get into it cost-effectively.

“Trade credit, extending terms for 30 to 90 days, is a way for companies to sell their products and services,” she explained. “That’s fine for big companies, which have ways of accessing capital to do it.” But small companies rarely have easy access to capital, and even when they do it is usually a line of credit meant to be used for emergencies.

Meanwhile, regional banks would like to grow their small business lending.

To bring the pieces together, she has developed Business Pay Connection (BPC), a type of cash management solution banks offer through Adrian’s company, Collaborative Financial Concepts. Running on computers hosted by Savvis, it allows buyers and sellers to collaborate electronically on purchase orders and invoices. When the terms have been agreed to, the parties notify the bank, and the bank transfers the funds to the seller and bills the buyer.

“It’s a slam dunk for me,” said John McGovern, a partner in Rodman & Rodman, an accounting and business consulting firm in Newton, MA. “This is a selling tool for new business. It differentiates me from the competition and makes us look real cutting edge. We are here to help their business become more profitable, and this is how we will bill them.”

McGovern works through 17-year old Enterprise Bank and Trust in Lowell, MA, now the 10th largest commercial bank in the state. Stephen Irish, the executive vice president and chief information officer at Enterprise Bank, helped Adrian develop the software so it would fit a bank’s workflow.

For a bank, this tool approaches the effects of the viral marketing that drove Hotmail – each user’s email would advertise the product to his correspondents.

“BPC creates a network impact,” said Irish. “We interest the seller, and they introduce us to the buyer, who wants to be a seller so he introduces us to more buyers. We have brought on several new relationships as a result of having this to offer, and it’s still in the late pilot stage.”

Sellers pay the bank three points for the financing, and the bank runs a credit check on the buyers before approving the extension of credit.

“If the bank isn’t going to take them on as a credit risk, I sure don’t want to be doing business with them,” said McGovern.

For McGovern, one of the biggest advantages was something he never thought of before signing up – it takes him out of the collections business and makes his relationship with clients entirely about helping them.

“Now when I call a client, they know it is never to collect money, so there is a subtle change in the relationship,” McGovern added. “I am only calling them for good things. I guess the onus to get the bill paid falls on the bank. The clients get 90 days float, and I am paying for it, so it is free to them.”

If a client is unhappy with his work, he learns quickly. The firm’s contracts call for payment on the 15th and end of month for work done. With BPC, the buyer is supposed to approve the invoice electronically within three to four days of receipt.

“If I am going to have a battle with a client, I would rather do it 15 days into a contract than 35 or 40 days,” said McGovern.

McGovern figures he will more than make up the three points he pays the bank in reduced back-office work once he has half his clients using the system. In addition, he and the client can review the contract on-line and make any revisions needed.

“Having that ability to look at the invoice in real-time is a big benefit because it facilitates pre-order acceptance,” McGovern said. “Let’s get the invoice exactly the way people want, so we have agreement upfront.”

Enterprise’s Irish said the tool can be used by a wide variety of businesses, but the sweet spot he sees is a manufacturer or distributor who has recurring sales to a buyer.

“From the seller side, there is the advantage of not having to manage receivables,” Irish said.

With BPC, Enterprise has picked up new clients at a faster rate than anticipated, he added.

“We think of it as cash management rather than lending. When you start talking about receivables and lending, people try to put you into a box and call it factoring. My analogy is that it is more like a proprietary credit card in a retail store,” Irish said. Commercial lenders need to think beyond making a loan, to using BPC as a relationship building service, he added.

By improving the credit-worthiness of their small business customers, banks will also be able to lend for capital improvements such as buying a building or some new machinery, Adrian said. She was fresh from talking to a small Massachusetts business with $250,000 in receivables, which, she said, could benefit from this electronic credit and payments application.

“BPC frees up cash that is theirs anyway, without creating more debt. As a result, small businesses look better, so when it comes time to expand and they need a bigger piece of capital, they look much better to the banks,” Adrian said.

Buyers like BPC because they get the credit from the bank and can maintain their cash. The electronic process also provides them with a simplified cash management system that is all electronic – they can see the invoices and make the payments online. With the credit, buyers can also buy more at one time and qualify for discounts.

Adrian expects BPC will be most useful to loan officers whose clients have more than 40 percent of their balance sheet in receivables. Her company, Collaborative Financial Concepts, has been working with loan officers at Enterprise Bank to figure out the most effective ways to market BPC.

“Once the seller is up on the system, we ask them to let us put together a mini-campaign to their buyer,” says Adrian. “The system lets the seller go online to invite the buyer into this program through an electronic invitation.” The invitation includes a credit application from the bank to qualify for a purchase line, much like the credit limit on a Visa card. The bank can run a credit score, conduct due diligence, and extend credit within 24 hours.

To test drive Seller and Buyer experiences for Business Payment Connection go to:

www.buspayconnection.com<>br

Seller: WFSFANS Password: 99999

Buyer1: Wfsbuyers Password: 88888

Buyer2: Wfspurchasers Password: 77777

www.colfc.com
www.enterprisebankandtrust.com
www.rodmancpa.com


Making Software as Simple as A-T-M

Sarsha Adrian, who founded Collaborative Financial Concepts and designed Business Pay Connection, has a long background in technology, including DEC and IBM. She built Business Pay Connection on Microsoft’s .NET.

“The development environment of .NET is absolutely fantastic, and I have been developing software my whole life,” she said. “We owe our ability to do rapid prototyping to .NET. We could sit with a customer and design the software right at the table and have a prototype up and running. .NET is good; it is reliable, and Microsoft has built a lot of features into the software. This is a phenomenal environment to develop in.” Half her development team came from Java background, she added.

“They all love .NET now. They rave about how fast they can develop, and the quality assurance process is just great. We are a total .NET shop,” she said.

Speed to functionality is important in the post DOT.COM world because investors want to see a prototype, or a functioning application, before they will advance money. She spent time at Enterprise Bank in Lowell, MA, seeing how the bankers work and how lending officers do their job.

“We designed this system so we can easily configure it to the way any bank is organized. We wanted to make sure they didn’t need to add any more manpower or hire a specialist. To do that, you have to work within a bank and understand the workflow.”

From user feedback the company decided to put everything on a single page, so even though it is a Web-based application, it functions like a PC application.

“Customers said they want it to be as easy to use as an ATM,” she said. Users can see the purchase order and invoice, and see when they are matched and the bank receives the buyer’s approval to pay the seller. The system has a complete audit trail.

“A firm’s controller can see new orders coming in and the sums being paid out, all on a single screen,” she said. “Purchase orders are matched to invoices electronically, so if an order changes, you can make the changes in real-time. Users call us the Windows of the financial world, because we make it easy.”