Why debt capital is hard for Finance and Engineering to manage
At first glance, the responsibilities of Finance and Engineering teams at technology companies seem entirely distinct: Finance leaders take care of things like invoicing and accounting, and Engineering teams build the company's core product.
However, the distinction between both teams is less clear when it comes to managing debt capital, as credit facility management and other capital markets task require a mix of data know-how, workflow automation, and reporting configuration. Each of these tasks requires input from both Finance and Engineering.
This overlap in responsibility often leads to friction beteween Finance and Engineering teams, especially at companies experiencing high growth. Finance teams want to make sure the company has access to debt capital, and doesn't fall short of any credit agreement requirements or trip any debt covenants; Engineering teams want to contribute to revenue-generating products, and to focus on the business' customer-facing "front-end".
In this post, we share five best practices for ensuring smooth Finance-Engineering collaboration when it comes to debt capital.
Five tips for ensuring efficient Finance-Engineering collaboration around debt capital
Put Strategy and the Big Picture First. The common debt capital goal that Finance and Engineering teams share is ensuring access to debt capital. We explored how to pick the right capital markets KPIs in a previous post, but it's worth repeating here: it's on Finance leaders to document and communicate the "win conditions" for capital access and share them with Engineering leaders. As an alignment exercise, it's sometimes helpful to start by producing a "Product Requirements Document" that includes everything Finance will need to manage a credit facility, which includes loan tape ingestion, funding request generation, and covenant alerting.
Clarify Responsibilities and Areas of Overlap. In general, Finance is responsible for the "what" and "why" (strategy and problem-identification), while Engineering is in charge of the “how” (technical implementations of the what and why. However, it is essential to further clarify each team’s purposes and roles within each debt capital task (e.g., "Who signs borrowing base certificates? Who generates and sends credit facility deliverables to the capital provider?"). With clarity on their responsibilities, teams can jointly address the technical and non-technical aspects of the business. In our experience, it's helpful to schedule a weekly or biweekly check-in between Finance and Engineering to facilitate collaboration.
Build Relationships and Develop a One-Team Mentality. Companies should foster a one-team mentality to avoid any instances of team members saying the dreaded, “That’s not my job." To do so, each team should understand the other’s motivations and how they shape the way certain decisions are being made. Some motivators for engineers include building things correctly and reducing technical debt. On the other hand, motivators for Finance include quickly responding to capital provider requests and having constant visibility into key metrics (e.g., credit facility advance rate). For more here, we recommend checking out our Debt Capital Checklist, and perhaps going through a DACI exercise to assign roles for each task.
Communicate Clearly and Visibly. Communication is one of the key factors of collaboration between Finance and Engineering teams. It is critical to establish regular communication between teams, and to do so "out in the open" (e.g., via email Groups or shared Slack channels) to prevent information silos.
Identify Capital Markets Roadmap Items. The last thing Engineering teams want is getting blind-sided by an unexpected request for a new data pipeline or financial reporting requirement. Creating a "product roadmap" for Finance and Engineering can help teams prioritize product features months or quarters ahead of time. This exercise helps streamline joint efforts and clarify the Finance team’s vision. Furthermore, bringing in Product Managers to help identify the features that should be prioritized based on capital provider or internal stakeholder feedback can help companies turn complex or ambiguous functional requirements into discrete Engineering deliverables.
For more information on what goes into managing a credit facility, as well as a comprehensive checklist of Finance-Engineering debt capital todos, check out our Credit Facility Management Cheat Sheet!
Want to learn more about debt capital?
Finley is private credit management software that helps Finance and Capital Markets teams manage asset-backed loans. Our software accelerates funding transactions and minimizes risk by automating routine debt capital management tasks like borrowing base reporting, verification, and alerting.
Today, Finley manages over $3 billion in debt capital for customers like Ramp, Parafin, and Arc. If you want to learn more about software that can help you streamline your debt capital raise and management, just schedule a demo. We'd love to chat!