"When you've got it, flaunt it" is Max's line in Mel Brooks's The Producers. Max sold the same Broadway show to one woman after another, none of whom knew each other, until he had sold 25,000 percent of the show, then picked a script so bad that the show was certain to close on opening night. And because a flop has no profits to distribute, nobody would ever discover that the same share had been sold 250 times. The scheme depended on every investor taking Max's word regarding what they thought they owned.
American receivables finance runs on the same arrangement: the funder mostly takes the business's word for the invoice. But in stark contrast to the “dastardly Max who got paid up front for profits that were never going to exist”, the average American business is sitting on real invoices sent to real customers who will actually pay.
Ask an American business owner about their receivables and you will probably get a mixture of statements like "My invoices? I'm super-frustrated, waiting on my customers to pay me for the work I completed almost three months ago” or “I already shipped the parts and I am pretty sure they’ve already put those parts in all the products they sold last quarter, but I still haven’t been paid a cent.”
Those sorts of complaints depict invoices as nagging liabilities, millstones around the business’s neck, but the reality is that if American finance can let go of this old-timey way of looking at working capital finance, businesses that barely think about their invoices today could tomorrow start planning how to quickly turn them into cash.
The average American business has never sold or borrowed against a single invoice. The few who do still don't consider it the best option. Our system in the U.S. buries the potential for timely liquidation at decent rates, underneath a layer of old-timey thinking that causes cashing out to take too long while also being relatively expensive.
What the majority of U.S. businesses miss is that their outstanding receivables a.k.a unpaid invoices, are incredibly safe financial assets that they can leverage for ready cash when they have their own great data to back them up. On most small-business balance sheets, invoices are the biggest assets after cash, and at plenty of companies, they are bigger than cash. Most of those invoices are sent to a creditworthy company that took delivery, approved the bill in its own AP system, and scheduled the payment. But, most businesses think about unpaid invoices the same way they might think about a cousin who owes them money and keeps pushing the pay back date.
No one at a pension fund says "I'm waiting on the Treasury to pay me.” They say they own a Treasury and they finance against it. The U.S. will celebrate the relative safety of T-bills and rejoice at the chance to refinance our homes, but we stubbornly look past these straightforward, short-duration gold mines manifested in our own companies’ aging reports.
This tendency to look past the gold mines is mostly attributable to how unpleasant funders make the application process. When an honest business and a would-be Max both show up in the funder’s office, carrying a stack of self-attested invoices and wearing the same confident smile, their risk profiles do present as similar.
Entrepreneurs in this country are effectively treated like a Max every time they walk into a funder’s office with an invoice. After fifty years of funders assuming any American entrepreneur could be a Max Bialystock, American entrepreneurs as a group can be forgiven for thinking about their invoices, not as things they can proudly own and monetize, but as bills they must send out and best not contemplate again until they are paid or need to be sent to collections.
The suspects have a spotless record
Almost every business in America is financially honest, which is the only reason the country has a market economy instead of a protection racket. Commerce runs on the premise: every day businesses ship goods on nothing but an invoice and 60, 90 or 120 days of trust, and the vast majority of those invoices get paid.
The broader data sets bear this out. The ICC Trade Register puts trade finance default rates at about one-fifth of the rate on comparable Moody's-rated corporate credits; an asset like that should be cheap to finance and financed everywhere, and in the U.S. today it is neither. American businesses issue about 21 billion invoices a year, some $14.2 trillion of trade receivables, and about 3.9 percent of that amount gets financed, against about 14 percent in Europe. At Europe's rate the U.S. market would be about $2 trillion rather than $530 billion. And that small sliver of receivables finance that the U.S. does enjoy is arguably egregiously expensive.
We’ll get to the egregiously expensive part in a moment, but the difference between the U.S. and other parts of the world here is infrastructure. Europe's invoices move over PEPPOL and the e-invoicing mandates built on top of it, so a funder can query an invoice before lending against it. Chile went further to say that electronic invoicing is compulsory, and the tax authority, the SII, runs the Registro Público Electrónico de Transferencia de Créditos, a public ledger of every invoice assignment. Chilean invoices are no safer than American ones, and Chilean funders are no smarter. But the Chilean funder can pull the SII record and reads off whether the invoice exists, whether it has been paid, and how many times it has been sold. The American funder has the business's word.
So today’s funders cling to the relative opacity, the lack of a registry, to justify slow funding and high rates. One can imagine a typical receivables finance funder thinking, every time they meet a prospect:: This business owner might be a Max! And how, oh how, would I ever truly know if they’re not? My world is crowded with potential Max Bialystocks, my world is shrouded in a mist of unavoidable latent risk…
It doesn't have to be this way. It is true that America has no invoice registry, so today an invoice gets spot-checked by hand, at $5 to $12 each, if it gets checked at all. Invoice factoring, ABL, and structured finance effectively price in a premium related to their slow, expensive processes, largely unrelated to whether the customer in question will actually pay. Under this regime, an invoice under about $3,800 is simply too costly to check, so almost nobody finances smaller invoices, which rules out almost every invoice in the country.
The one market that still takes your word for it
To finance a house, an independent appraiser values it, a title company searches the deed, and a credit bureau reports your history; every fact the lender relies on comes from someone other than the homebuyer. To finance an invoice, though, the business just hands over its copy of what is hopefully a real invoice. The funder still does weeks of underwriting on it, but the majority of documents it underwrites were produced by the business itself, the same party asking for the money. Nowhere else in American lending is the applicant the main source of evidence that the collateral exists. On this one, like Zoolander’s Jacobim Mugatu, it really can feel like you’re taking crazy pills.
The funder might contact the debtor. Might. Major invoice factors' own guidance says verification with account debtors "is not typical and may potentially add risk to the transaction," which is like a mortgage lender skipping all their steps and saying here is your mortgage. That is arguably precisely what happened in the recent past, but let’s all agree it didn't go well. Good finance independently certifies with data that the deal looks good.
What not looking costs
September’s Max Bialystock is an iron ore trader called Radiant World. Since 2021, a Jefferies fund bought about $3.8 billion of Radiant invoices naming Glencore, and when the fund pressed Glencore this year on $526 million it believed was outstanding, Glencore answered that most had been paid months earlier and some were not invoices at all: "vsl not found, contract not found." Glencore had never received a notice of assignment and took a $480 million provision. Radiant, with $200 million of cash a year ago, reports $10,000 in cash now and denies everything. Ten thousand dollars! Someone should have made them use Plaid and prove their balance is what they say it is (like Merchant Cash Advancers do, paragons of careful finance.)
The best detail about the Radiant World fiasco is at Mizuho. Radiant asked a Glencore operations manager to confirm $95.5 million of receivables and copied a Mizuho banker; the next morning Radiant forwarded the banker an attachment purporting to be Glencore's reply. The banker had asked to be on the thread and had received a forward instead, so he called Glencore himself and was told the cargoes, invoices and email did not exist. That phone call is this whole article.
An invoice is a kind of picture, and we read it the way we read a photograph, presuming the scene really happened. Fraud lives between that presumption and someone checking whether or not it’s a deep fake; similarly a fabricated invoice cannot be caught when its owner/fabricator is the only witness. A funder who cannot tell your receivables from Radiant's, who cannot tell a real picture from one that has been AI-generated, has to price all the assets as suspect. That is the trust tax, and every honest business in America brave enough to try and finance their receivables pays it for a fraud problem that is not actually their problem.
Your business already has the proof
Savvy businesses are starting to see that their teams already make the Mizuho phone call every morning without knowing it. They just need to pass the answer along through certification technology instead of a pinky swear.
Somebody on your collections team logs into the customer's portal and sees the invoice marked received, then approved, then scheduled. Then that collector types a note into the aging report, and your customer's confirmation becomes the business's claim.
The problem is that if you forward your copy of that claim to a status-quo funder today, all it sees is you attesting, in effect, "God's honest truth, this is the original invoice." That is self-attestation again: a forwarded attachment, and a possible Radiant World.
The strongest evidence a company owns about its largest liquid asset becomes the weakest kind when funders have to trust that your business is being honest. What the funder really needs is for your customer to effectively blindly hand them the claim, not you. That’s the only real proof your invoice is scheduled for payment.
What flaunting looks like when it is done right
Flaunting only works when someone other than the flaunter holds up the proof, and the U.S. will likely not build a national registry to do it. What U.S. funders can do is read the obligor's records directly and continuously, which is what Kapwork certification enables. We read invoice status inside the customers’ systems of record and capture it ourselves for about a quarter per invoice. The output is a timeline of what the customer did, invoice by invoice, and the floor on a financeable invoice drops from $3,800 to about $115. You, the American business, don’t get a say in what’s true and what’s not. Your customers’ systems get that say.
Once a receivable carries a believable record, showing it off is routine: the asset-based lender gets a borrowing base that updates when your customer acts, funders get the short-duration, customer-confirmed paper they keep saying they want, a fabricated invoice has no approval to show, and an invoice pledged twice points back to one record.
The bottom line
Receivables are a believable asset with an unbelievable evidence problem, owned by people taught to think of them as a grievance instead of the best possible asset they have. Your customers produce the evidence, and your team reads it, so stop summarizing it and put your customers' records in front of everyone who prices your credit. . Max flaunted what he did not have. You have it. Flaunt it.
Usual caveat: I help run Kapwork, so I am talking my own book. None of this is legal or investment advice.