Trade Finance
Published  10 MIN READ

Tools of the Trade

Unlocking Cash Through Supplier-led Solutions

Supplier-led financing solutions for releasing cash have grown to become a major element of international supply chains. In a recent webinar, TMI’s Editor Eleanor Hill explored the essentials of trade receivables finance and trade receivables securitisation with Maurice Benisty, Chief Commercial Officer at Demica, and Ingmar Bergmann, owner of IMB Consulting.

For as long as they have existed, supply chain financing solutions have helped buyers and suppliers to unlock working capital efficiencies, while making their supply chains more resilient. But for those unfamiliar with such solutions, they can seem daunting – and the terminology around them can also be confusing, especially since since different banks and providers refer to these products by different names.

As such, before exploring practicalities, it is worth starting with the fundamentals:

  • Trade receivables finance is a version of supply chain finance where businesses can gain funding for invoices owed to them before the payment date is reached. This means they can access working capital currently trapped in their supply chain, improving their cashflow. The term can encompass several different types of solutions from factoring to receivables discounting programmes.
  • Trade receivables securitisation is a way for large corporates to sell pools of their outstanding invoices into a special purpose vehicle (SPV) which in turn will issue securities or notes to investors. Investors will commit to purchase the notes for up to five years against a formula that considers dilution and loss history. Securitisation is ideal for companies with large numbers of customers and can aggregate receivables from operating companies across different geographies and business units.

Growing demand for solutions

Bergmann notes that all forms of receivables financing appear to be on the rise – for several reasons. Factoring, for example, traditionally a manual process, has become more user-friendly thanks to technology. “So-called subsidy financing from governments responding to the pandemic temporarily removed the need for factoring, but the post-Covid era has seen rapid interest rate hikes worldwide,” he reports. “As funding grows increasingly expensive, factoring is once again an attractive option, while banks have lost interest in the work involved in capital financing.