For much of the past two years Enterprise Bank of Lowell, Mass., has been experimenting with what may be a unique product: software for extending credit lines online to the customers of its small-business clients.
After an overhaul of the software, Business Payment Connection, the $806 million-asset bank has begun to introduce the service more broadly to its small-business accounts. It claims a remarkable response rate.
Meanwhile the vendor, Collaborative Financial Concepts LLC of Waltham, Mass., is starting to market the software to other community banks. The company says it has a patent.
Stephen J. Irish, Enterprise Bank's chief information officer, said that though the program brings in lending business, the primary goal is to retain clients.
"We offer it more as a cash management tool to the sellers," said Mr. Irish, an executive vice president. "The more services you offer to commercial customers, the tougher it is for them to go somewhere else."
The software is designed to offer smaller businesses the benefits of online contracting and supply-chain management without requiring their managers to master complex technologies such as electronic data interchange.
Perhaps more important to the bank's customers, the software promises to free them from providing "trade credit" financing to their customers. They get a bank credit line instead.
Sarsha Adrian, the founder and president of the software firm, said Business Payment Connection is suitable for bank customers with annual sales of up to $60 million.
Even companies of that size "still have problems with cash flow management," she said. Business Payment Connection is "a niche product, but it's filling a real void in the system."
Enterprise Bank, whose holding company is Enterprise Bancorp Inc. of Lowell, has been working with Ms. Adrian's firm for two and a half years. They tested the software with small group of buyers and sellers.
Enterprise Bank had worked with Ms. Adrian on an earlier venture called PrimeStreet.com, an unsuccessful attempt to let small-business owners shop online for loans.
The bank has no ownership stake in Collaborative, Mr. Irish said, "but we have put a lot of human capital in to help them direct the development" of the credit-line software.
Ms. Adrian said feedback from focus groups led her firm to start redesigning the software last year.
The original design, which forced users to input different types of information into a series of Web pages, proved confusing, she said. The redesigned version, introduced in the summer, has a single-screen "dashboard" where buyers and sellers can check the status of their accounts.
The system enables a seller to ship products using multiple invoices against a buyer's single purchase order, and it accommodates change orders and various adjustments, to provide an audit trail for financial reporting, she said.
Mr. Irish said the bank began pilot testing the redesigned system with a small group of customers this summer. Now the bank is gradually rolling the program to more customers. So far, however, it is offering the program in only one of its 12 branches.
It recently sent 40 to 45 information packets to business customers in that branch's service area, he said. "We got 20 that responded to that and were very interested in it."
Often customers think the product is a form of factoring, but it is not, Mr. Irish said. In factoring, an old-fashioned form of receivables financing, a bank or other lender essentially buys a seller's accounts receivable at a discount, taking responsibility for credit management and collections.
"This is quite the opposite," Mr. Irish said. "We're granting the buyer a line of credit."
An analyst said the system could attract small companies to do more of their banking and contracting online.
"It's a fascinating idea. I'm sure you'll see it getting picked up," said Lee Kidder, the director of wholesale banking at the market research firm TowerGroup, a Needham, Mass., unit of MasterCard International.
Especially as the Internet enables small companies to do business beyond their immediate geographic markets, their needs for bank financing will grow, Mr. Kidder said. "It's a good idea, and it's one that's so simple you wonder why banks haven't been doing it for decades."
