How to: Wayflyer

In 5 short years Wayflyer has become the 800 pound Irish gorilla of ecomm working capital. Based in Dublin, Wayflyer quickly expanded internationally and operates in the US, Canada, UK, several European countries, Australia and New Zealand. Backed by top tier fintech VC’s, they have warehouse lines from JP Morgan, Neuberger Berman, and Atlas and do over $100 million in fundings per month.

Here’s almost every brand’s challenge:

I have a brand. I sell DTC and/or Amazon and/or through wholesalers. I typically pay for my goods before I get money from selling them. I spend a bunch on marketing and often have to pay those bills before I realize all the sales from those newly acquired customers. I have seasonality. I need working capital.

Here’s how Wayflyer summarizes their offerings.

There’s a lot of nuance, so let’s dive in to understand each offering better.

MCA’s

Wayflyer offers classic MCA (Merchant Cash Advance) products in two flavors with common features.

1. The daily sales remittances (how to model loom video)
1. You are advanced a certain amount of cash.
2. Your repayment amount is the advanced amount plus a fee. The fee will range from 4% to 9% of the advanced amount.
3. A percentage of daily sales is assigned.
4. You pay this percentage of daily sales until you have re-paid the repayment amount. Most advances pay back between 4 and 8 months.
5. A cap on remittances is negotiable. The cap can be either weekly or monthly and prevents you from paying back too quickly and before the targeted 4 to 8 months.
6. Like all such products, the cost of capital will be relatively high. And more importantly, your ability to use the capital is diminished by the rapid repayment.
2. Fixed weekly payments (how to model loom video)
1. Similar to above, Wayflyer advances a certain amount of cash and adds a fee which is then added to the advance amount to become the repayment amount.
2. But instead of daily remittances, a certain number of weeks is set over which you repay the repayment amount in equal, weekly payments. For example, if the repayment amount is $503,000 and the repayment weeks are 21, then your weekly payment is $23,952.
3. This option gives you certainty of payment amount and number of payments, but you lose the flexibility of your payments rising and falling with your sales.

Wholesale (how to loom video)

For brands selling through retailers, there are two big problems. One is the need to fund large, lumpy and hard to predict inventory purchases. The second is getting paid with long payment terms, unexpected holdbacks and the occasional bankruptcy added to the confusing mix.

We got a huge order from Target. Christ! We got a huge order from Target!

Combining traditional invoice or AR financing with short term loans is one option (I wrote about this here). Wayflyer’s solution works similarly to their fixed fee MCA product, but instead of focusing on your online revenue, they look at your wholesale revenue. So,

1. Their underwriting decides on an amount to advance. This is typically half of your monthly wholesale revenue.
2. A fee is applied to this advance and the advance plus the fee becomes the amount you repay.
3. A number of payments is determined and the repayment amount is divided by the number of payments to get your payment amount.
4. Payments are weekly or bi-weekly (every 2 weeks) and sometimes payment holidays can be negotiated.

A big advantage of this product over traditional factoring is you can use the advance to fund the entire Cash Conversion Cycle. With traditional factoring, you receive the advance upon presentation of the invoice. Factoring just finances the period from the invoice to payment by the retailer. But you are left financing the purchase or production period.

Your margin really comes into play here. Let’s say Wal-Mart has beaten you up and your COGS as a percentage of invoice is 50% or even higher. Receiving 50% of monthly sales may not be enough to fully fund the cost of product or production. Your growth and seasonality factor in here too. If you are growing rapidly, 50% of past revenue will not be enough to fund your future sales. Likewise, if you are coming out of a slow period and getting a big order for Q4, half of your past revenue may not be enough to pay for the products of a big future season. Your analysis will have to balance cash for longer against potentially higher advance rates from factors.

Amazon (how to loom video)

The Amazon product works in much the same way as above, just using your Amazon sales as the basis for determining the advance.

Enterprise (how to loom video)

Wayflyer positions their Enterprise product against revolvers and because they draw the comparison, it’s important to understand how revolvers work. They are fantastic products from the brand’s point of view because you get to draw exactly the amount of money you want just when you want it and pay low-ish interest rates.

Banks don’t like revolvers because they have to ensure their capital is available to be withdrawn on a moment’s notice which means they essentially have capital sitting idle hoping you use it. They usually make up for this by (a) forcing you to use some of the revolver (b) adding on all sorts of fees for unused capital and (c) forcing you into a lot of their other products so they can get fees in other ways.

With a typical bank revolver, you

1. Draw upon the revolver.
2. Pay interest on the amount drawn. This can be current (meaning you pay it when due) or accruing (meaning it is added to the principal balance).
3. Pay back the money owed when you want or within the terms (often 12 months but sometimes longer).

Wayflyer’s Enterprise product does not work like this and is more like a variation of a MCA. But it still has real benefits to brands. Here’s how the Wayflyer Enterprise product works:

1. Wayflyer gives you terms valid for the next 9 months which specify your Credit Limit, Monthly Fee and Maximum Repayment Term (typically 9 months).
2. When you want an Advance, you choose your Repayment Months up to your maximum.
3. Your Fee is then the Monthly Fee * Repayment Months.
4. This Fee is added to your Advance and that total becomes your Repayment Amount.
5. The Repayment Amount is divided by the number of weeks in your Repayment Term and this is your Weekly Payment.

Unlike a true revolver, you are forced into paying back your advance right away and on a defined schedule. And you are certainly paying a higher rate than a traditional bank revolver. So, what makes this product good for brands?

1. Because banks don’t like revolvers, you often have to be pretty big and important to them to get a meaningful one. Wayflyer offers this product to brands doing $20 million or more.
2. The underwriting process is going to be much faster and easier with Wayflyer than a bank.
3. Unlike a MCA or other short term products, this product gives you certainty of credit availability 9 months out.
4. Banks hate re-underwriting. Once they have underwritten you and given you a credit limit, you are often stuck with that for a year. Maybe you can convince them to re-underwrite you after 6 months. Wayflyer will re-underwrite every 90 days. If you are growing rapidly, this is a huge advantage as your credit availability will steadily increase to meet your needs. And as I have discussed before including here, availability of the right amount of capital that matches your cash cycle is key. As long as the cost of capital is below your ability to generate returns on it, cost is not as critical as amount and repayment.
5. Similar to other revolvers, Wayflyer requires you use some of the capacity. In their case, you have to use 25% of the credit limit within the first 60 days. But once you satisfy that, there are no other fees (besides the Monthly Fee). This is in stark contrast to common bank term sheets loaded with fees you have to negotiate out or down.
6. Wayflyer does not have covenants. Banks will often put in covenants around financial metrics such as Balance Sheet ratios or EBITDA coverage ratios. Tripping one of these covenants has serious relationship repercussions and potential legal repercussions.
1. Wayflyer has key metrics which have no legal repercussions but allow you to understand what they are considering when deciding on credit limits. These key metrics are in three areas:
1. Some level of revenue growth.
2. CAC below $X or at a certain CAC to AOV ratio.
3. Balance Sheet health such as avoiding net liability or taking on too much short term debt.

See how all these work for yourself

I have modeled all these products out here:

Elephant Herd Short Term Lending Comparison Calculator

docs.google.com

Playing around with assumptions and seeing how the products act with real revenue numbers has helped me understand them better.

Important Considerations

1. All Wayflyer lending products are unsecured. This helps you use them in conjunction with senior secured products (assuming those loans allow this or don’t prevent it) and also dramatically reduces the documentation, due diligence and time to close.
2. Wayflyer does not require Personal Guarantees.
3. Wayflyer is looking directly at your data through access to core platforms such as Quickbooks, NetSuite and Shopify. While this can speed underwriting, if your books are messy or your balance sheet is not clean, you will get dinged. Once a red flag has been raised, it’s harder to get it lowered than it is to address this directly upfront. I suspect given this reliance on direct access as well as their funding sources that they are picking off the best credits and less flexible on nuance and messiness than others.

Shout out to Richard Keane (@richiekeane10) at Wayflyer (@wayflyerapp) for stepping me through the products and answering my questions.

This is not a sponsored post and I am receiving no compensation. I find financial products interesting and like to understand how they work and want to share what I learn.

I am an Inflection CFO. That means I help brands get to the next level by rapidly improving their finance function through 3 to 6 month, high ROI engagements. If you need help, let’s talk!