A Workshop Program Designed for SMEs - AMBD SME Presentation.pdf · A Workshop Program Designed for...

A Workshop Program Designed for SMEs

1

Bob Trojan and Adalberto Elias

NatLaw

September 16th & 17th, 2019

Situational Perspective:

Background/Current State of the Secured Transactions Order (STO)

Framework and the Collateral Registry

Adalberto Elias

2

SME Lending

Why is it important?

Successes in other economies

3

SME Finance Gap

4

There are

400 millionSMEs in developing countries

50% are unserved

or underserved

only 14%have a loan or line

of credit

Source: World Bank Group

SME Finance Gap

5Source: World Bank Group

Secured Transactions Systems

6

Bank Accounts

AccountsReceivable

Inventory andRaw Goods

Intellectual Property Rights

Industrial and Agricultural Equipment

Durable Consumer GoodsAgricultural

Products

Vehicles

Collateral Gap

7

Capital Stock of

Firms

Collateral Taken by Financial

Institutions

Mismatch between assets owned by companies and collateral required

73%

27%

Land/

Real Estate

Vehicle/

Machinery/

Equipment

Accounts

Receivable Land/

Real Estate

Movable

Property

Movable

Property

22% 44%

34%

78%


Why are financial institutions not willing to take movable property as collateral?

8

Because there is a lack of

Legal framework Registry of security

interests in movables

Know-how on

movable asset lendingInterests

Benefits of a Solid Secured Transactions System

9

Increases access to credit reducing the risk of credit

Reduces the cost of credit

Increase market competition

Promotes credit diversification

“Collateral Registries for Movable Assets: Do they Spur Firms’ Access to Finance?”

10

ACCESS

TO

FINANCE

ACCESS

TO

LOAN

INTEREST

RATES

WORKING

CAPITAL

FINANCED

BY BANKS

LOAN

MATURITY

-3 +7 +8 +10 +6MonthsPercentage points Percentage points Percentage points Percentage points

Study also provides evidence that the impact of the introduction of

movable registries on firms’ access to finance is larger among

smaller firms, who also report a reduction in subjective, perception-

based measure of finance obstacles.Source: World Bank Group

Potential Effect in Secured Transactions

11

The end result would be greater access to credit to SMEs, more jobs

created and increased competition in the financial marketplace.

Improved legislative framework governing

secured transactions which is more

transparent, efficient and comprehensive.

New registry with robust platforms,

proper capacity and wide usage.

Increased capacity of financial

institutions to design and offer new

products where movable assets are used

as collateral.

Principles for Effective Secured Transactions

12

Effective Secured

Transactions System

Broad scope

Creation

Publicity / registration

Priority

Enforcement

Doing Business “Getting Credit” Indicator

13

Borrowers and Creditors Right Index

(0-12)

OECD

Europe & Central Asia

East Asia & Pacific

Latin America &

the Caribbean

South Asia

Sub-Saharan Africa

Middle East & North Africa

Low High

6

6.4

6.6

5.3

4.6

5

2.2


Global Collateral Registry Projects

14

• Implemented new Secured Lending

Law in 2013 and established new

centralized collateral registry in

March 2014.

• More loans registered in the first 6

months of implementation than in

the last 30 years. More than 445,000

loans registered for a value of more

than US$ 1 trillion.

Colombia China

• Legal reform was implemented in 2007

and Registry launched in 2008 covering

accounts receivable and leasing.

• More than 10.4 trillion dollars in

financing with accounts receivable

(mostly for SMEs). Development of the

factoring and leasing industries.


Global Collateral Registry Projects

15

• Legal reform and new centralized

online registry, which launched in

March 2012, has provided 675,000

loans to more than 354,000 SMEs and

20,000 micro-enterprises.

• Total volume of financing through

the registry is US$ 27 billion.

Vietnam Mexico

• Law reform and new centralized online

registry launched in October 2011.

• Over 150,000 loans have been

registered for a total secured amount

estimated at over USD$200 billion.

Loans secured with movables have

grown fourfold.

• 45% of the loans to the agricultural

sector and 95% to SMEs. Businesses

have saved US$4 billion in fees.Source: World Bank Group

Ghana: Impact on SMEs - Supply Chain Finance

16

CAL BANK:

Purchase Financing

Scheme for Gold Mining

Developed a local supply chain for big mining corporations, through

local SME service providers

• More than 100 local SMEs have received more than US$ 10

million. Created hundreds of new jobs.

• SMEs use movable assets (contracts, receivables, equipment) as

collateral.

• No defaults in the 30 months that program has been operating.

Number of loans registered 77,500

Value of loans registered US$ 20 billion

Number of SMEs 8,000

Number of microenterprises 30,000

Collateral by type

25% inventory and receivables

20% household goods

19% vehicles


The Art of the Possible

New Financial Products for SMEs

Overview

17

Enabling Framework

18

Lending

Products

Borrowers Lenders

PlatformsBank

Regulation

Secondary

Market

RegistryLegal

FrameworkEnforcement

Movables Finance Matrix

19

FINANCIAL INFRASTRUCTURE

TIT

LE

TR

AN

SA

CT

ION

LA

WS

SE

CU

RE

D T

RA

SA

CT

ION

LA

WS

COLLATERAL

REGISTRY

ENFORCEMENT

SYSTEM

BANKING

REGULATION

SECONDARY

MARKET

FINTECH &

TRADING

PLATFORMS

POTENTIAL

CREDIT

PRODUCTS

POTENTIAL

COLLATERAL

POTENTIAL BORROWERS

Consumer Financing Financial Leasing Equipment Financing

Inventory Finance Merchant Financing Factoring

Supply Chain Finance Accounts Receivable Financing ABL: Secured Lines of Credit

Warehouse Receipt Financing Securities Lending Others

Motor Vehicles

e-Payments

Raw Materials Inventory

Accounts ReceivableNegotiable

InstrumentsCash Bank Deposits

Bills of LadingWarehouse Receipts Letters of Credit Securities

Equipment

Fintech & Digitized

AssetsOtherCredit Card Receipts

Consumers

SMEs

Informal Enterprises

Corporates Special-Owned Business

Micro-Businesses

Movables Finance Matrix

20

FINANCIAL INFRASTRUCTURE

TIT

LE

TR

AN

SA

CT

ION

LA

WS

SE

CU

RE

D T

RA

SA

CT

ION

LA

WS

COLLATERAL

REGISTRY

ENFORCEMENT

SYSTEM

BANKING

REGULATION

SECONDARY

MARKET

FINTECH &

TRADING

PLATFORMS

POTENTIAL

CREDIT

PRODUCTS

POTENTIAL

COLLATERAL

POTENTIAL BORROWERS

Consumer Financing Financial Leasing Equipment Financing

Inventory Finance Merchant Financing Factoring

Supply Chain Finance Accounts Receivable Financing ABL: Secured Lines of Credit

Warehouse Receipt Financing Securities Lending Others

Motor Vehicles

e-Payments

Raw Materials Inventory

Accounts ReceivableNegotiable

InstrumentsCash Bank Deposits

Bills of LadingWarehouse Receipts Letters of Credit Securities

Equipment

Fintech & Digitized

AssetsOtherCredit Card Receipts

Consumers

SMEs

Informal Enterprises

Corporates Special-Owned Business

Micro-Businesses

Types of Lending with Movables

21

SME Financing

Financial Leasing

FactoringAsset Based

Lending

Supply Chain

Finance

Inventory Finance

SME Financing

22

SME Cash Cycle / Collateral

Payment

Sale of

Product

Transformation

Process

Purchase Raw

Materials

23



Factoring

24

Factoring

25

LEARNING OBJECTIVES

Focused objective is to gain a firm understanding of factoring

and enhance skills, in order to sell, utilize and process factoring

transactions in line with established standards;

Equip participants with sufficient knowledge to understand and

avoid operational risks involved in invoice financing;

Provide micro lenders and banks and their clients with a sound

understanding of factoring principles, allowing them to better

structure trade transactions, improve risk assessment skills and

identify opportunities where factoring could be utilized as a

financing tool to facilitate the optimization of clients’ trade

activities.

Factoring

26

LEARNING OUTCOMES

At the end of the training, participants should be able to:

Gain knowledge on factoring and how it works;

Gain deepened understanding on why businesses factor;

Gain understanding on what factors look out for before signing

clients on;

List the factoring process and explain the techniques to

establish productive factoring relationships.

Factoring

27

Factoring

28

What is factoring?

How does it differ from commercial lending?

Who are sellers in this context?

Who are clients in this context?

Who are account debtors in this context?

Factoring

29

" refers to:

the outright purchase and sale of accounts receivable

(A/R) invoices at a discount from their face value.

the structure, terms and conditions of such a

transaction may vary in any number of ways, as

evidenced by the array of factoring programs currently

available.

Factoring Definitions

• Factoring is a transaction in which a business sells its invoices, or receivables, to a third-party financial company known as a “factor.” The factor then collects payment on those invoices from the business’s customers.

• Factoring is also called “Purchase of Receivables”.

• The main reason that companies (Sellers) choose to factor is that they want to receive cash quickly on their receivables, rather than waiting the 30 to 60 days it often takes a customer (Obligor/Account Debtor) to pay.

Source: http://www.rtsfinancial.com/guides/what-factoring 30

Factoring Definitions

• When factoring an invoice, the factoring provider advances to you (Seller) a percentage of that invoice value, usually within 24 hours. The factor will then pay the balance of the invoice, minus fees, after it collects payment from the customer (Obligor/Account Debtor).

• The cash advance rate can vary depending on what industry the client (Seller) company is in and which factor is chosen. The advance rate can range from 80% of an invoice value to as much as 95%. The client (Seller) industry, the customers’ (Obligor/Account Debtors’) credit histories and other criteria help determine the advance rate received. 31

Factoring Benefits

• Boosting cash flow is the main reason most companies factor.

• Factors provide free back-office support, including managing collections from customers.

• Factoring is based on the quality of the customers’ (Obligor/Account Debtors’) credit, not the client’s (Seller’s) credit or business history.

32

Factoring Benefits

• Factoring can be customized and managed so that it provides necessary capital it is needed (seasonality).

• Factoring is not a loan, so no debt is incurred debt when factoring.

• Factoring is scalable, meaning the amount of funding can grow as receivables grow.

Source: http://www.rtsfinancial.com/guides/what-factoring

33

Factoring

34

Forms of factoring programs include:

1. Maturity Collection with credit insurance

2. Factoring (purchase of invoice)

3. Account Receivable (AR) Financing

Factoring Definition

35

GOODS

INVOICES

BUY INVOICES

COLLECTIONS

Factoring Flows

Invoice

Sale +

Confirmation

FACTOR

SELLERObligor/Account Debtor

1. SME seller of goods or services delivers to Obligor/Account Debtor and sends invoice for sale

2. Obligor/Account Debtor confirms delivery and terms of invoice

3. SME discounts invoices with factoring company

4. Obligor/Account Debtor must pay factoring company and Seller notifies Obligor/Account Debtor of the transaction

36

Factoring Flows - Roles

FACTORSELLER Obligor/Account Debtor

• Can be

• Bank

• Non-Bank

• FinTech

• Also called “Factoring

Provider”

• Purchases receivable

from Seller

• Can be

• Manufacturer

• Farmer

• Producer

• Service Provider

• Large or Small Business

• Also called “Client”

• Is originally owed payment

from the Obligor/Account

Debtor for product or

services purchased

(Creation of Receivables)

• Can be

• Distributor

• Retailer


• Government

• Also called “Customer” or

“Debtor”

• Originally owes payment to

the Seller for product or

services purchased

37

Factoring Flows

Invoice

Sale +

Confirmation

FACTOR




3. SME discounts invoices with Factor

4. Seller notifies Obligor/Account Debtor of the transaction and Obligor/Account Debtor must pay Factor

38

Factoring Flows

Invoice

Sale +

Confirmation

FACTOR






39

Factoring Flows

Invoice

Sale +

Confirmation

FACTOR






40

Factoring Flows

Invoice

Sale +

Confirmation

FACTOR





4. Seller notifies Obligor/Account Debtorof the transaction and Obligor/Account Debtor must pay Factor

41

To Lend or Purchase Receivables?

42

Factoring Benefits

• Allows a company (Seller) to improve their cashflow

• Gives a company (Seller) control over their risk of Obligor/Account Debtor default

• Provides a company (Seller) balance sheet relief regarding Accounts Receivables

• Enables Obligor/Account Debtor to pay on normal terms without pressure from Seller

• Gives a financial institution a secure mechanism for ‘financing’

• Factoring (done right) can be very profitable

43

Factoring

44

Companies engaged in the business of buying accounts

receivable are called "Factors." It often exhibits a

flexibility and entrepreneurial awareness whose

activities are more generally restricted by regulation

and prevailing law.

Factoring

45

Companies selling their receivables are typically

referred to as "clients" or "sellers" (not "borrowers").

The client's customers, who actually owe the money

represented by the invoices, are generally known as

"account debtors" or "customers.“

Factoring

46

Characteristically, there seems to be no industry-wide

term of art to describe the actual event that occurs

when a Factor accepts invoices for purchase. Common

terms for this event include: "schedule," "funding,"

"advance," "assignment" and "transaction."

Factoring

47

The cash which a Factor issues to a client as initial

payment for factored invoices is typically called an

"advance."

Factoring

48

Difference between factoring and commercial lending

Factoring differs from commercial lending because it

involves a transfer of asset (account receivable) rather

than a loan. In assessing risk, financial institutions look

primarily to the quality of the asset being purchased (i.e.

the ability to collect client receivables), rather than to the

underlying financial condition of the seller/client. Suitable

vehicle for growing businesses when traditional commercial

borrowing proves either impractical or unavailable.

Factoring

49

Factoring vs. Accounts Receivable (A/R) Lending

Although factoring is occasionally confused with

accounts receivable (A/R) lending, it actually differs

both legally and operationally.

Factoring

50

LEG

ALLY

Factoring AR Lending

A factor takes immediate title

to the invoices it purchases.

An A/R never takes title to

invoices unless and until the

borrower defaults on its loan

agreement.

With the transfer of title, the

factor purchases the right to

collect payments directly from

account debtors, who thus

become legally obligated to the

factor.

An A/R loan does not legally

obligate account debtors to pay

the lender directly, except

when the lender notifies them

of a default by the borrower.

Factoring

51

OPER

AT

ION

ALLY

Factoring AR Lending

The Factor concentrates on the

aging, collection, and posting of

each factored invoice.

The A/R lender does not track

the payment status of every

individual invoice generated by

the borrower in the normal

course of business.

The factor will find it necessary

to contact individual account

debtors directly as a matter of

course.

An A/R lender will have

virtually no interaction with

individual account debtors.

Factoring

52

Recourse vs Non-recourse

What happens when an account debtor becomes

financially unable to make payment for an

outstanding invoice that a factor has purchased?

The answer depends on whether the Factor operates on

a Recourse or Non-recourse basis.

Factoring

53

A Recourse transaction allows the Factor to make claims

against the client in order to recover losses caused by

account debtor insolvencies. Recourse factoring

agreements generally require the client to repurchase any

invoices that remain unpaid after a certain number of days

(typically 60 or 90).

Factoring

54

In a Non-Recourse transaction, the Factor purchases the

underlying credit risk associated with each factored

invoice. The client incurs no liability to the Factor if the

account debtor proves financially unable to make

payment. In such an event, the Factor either absorb the

loss, or enforces action against the account debtor.

Non-Recourse Recourse

Guarantee debtor credit Client refunds uncollected

invoices

May not be many opportunities

in Brunei

Well suited to smaller

situations

Service depends on the client’s greatest need

55

Need to manage risk Needs access to cash

Factoring

Factoring

56

Events Undertaken in Factoring Process

Factor approves account debtors' credit

Client submits invoices

Factor receives and processes invoices

Factor verifies invoicesFactor disburses

advances

Factor notifies debtors

Factor tracks invoice performance and collects payment

Factor deposits and posts payment

Factor disburses rebates to client

Factor reports to client

To Lend or Purchase Receivables?

57

Lending on receivables

(ABL/AR Financing)

Recourse Factoring

Operationally more complex Simpler

Requires specialized cash

management through lock box

Debtor pays factor direct

Usually more cost-effective at

larger volumes

Works well for smaller clients

Factoring



Supply Chain Finance

Supply Chain Finance (SCF)

Cash Conversion Cycle or CCC is the number of days that a business

entity takes to convert its input resources into liquid cash flow. This

metric aims to measure how much time a company takes to sell its

inventories, collect its receivables and pay off its bills without any

delay penalty being charged. Every dollar that is tied up to the

process of production till it is recovered as sales are scrutinized to

calculate the cash cycle of an entity. A lower number of days are the

most desirable when it comes to Cash Conversion Cycle.

CALCULATION

The length of a cycle can be measured using the following formula:

CCC = DIO + DPO + DSO Days

Where,

DIO = Days Inventory Outstanding

DPO = Days Payables Outstanding

DSO = Days Sales Outstanding

Sell finished product

CashCash Profit

Get paid

Pay debts to suppliers Purchase inventory

or raw materialsThe Cash

Cycle

The cash cycle


Inventory Sold and Accounts Receivable Set Up

CashRemaining

Cash to Bank

Accounts Receivable

Collected

Cash Used to Pay Accounts

Payable and Other Expenses

Used to Purchase Inventory, Set Up Accounts Payable

The Cash Cycle

Cash cycle with customer and supplier credit

Credit to customer:Payment terms

Credit from supplier:Payment terms


Inventory Sold and Accounts Receivable Set Up

Cash advance

from lender

Remaining cash repays

loan

Accounts Receivable

Collectedby lender

Cash Used to Pay Accounts Payable and

Other Expenses

Used to Purchase Inventory, Set Up Accounts Payable

The Cash Cycle

The end goal: Cash cycle with Lender, Buyer and Supplier credit

Credit to BuyerPayment terms

Credit from Supplier:Payment terms

Credit to borrower:

Revolving lineNOT aTerm loan



Objective: To provide working capital to Supplier by

enabling sale of account receivables on open

account terms – while enabling buyer to

improve working capital, or get better returns

on their cash

Most popular: Reverse Factoring - Supplier funded

through early payment (invoice amount less

discount fee) on Buyer approved invoices

Funded by a Bank, or Non-Bank financial

institution (Payables Financing)

Supply Chain Finance aka “Reverse Factoring”

SME Financing

Financial Leasing

FactoringAsset Based

Lending

Supply Chain

Finance

Inventory Finance

Supply Chain Finance (SCF) Concepts

• A set of technology-based business and financing processes that link the various parties in a transaction – the buyer, seller, and financing institution

• SME suppliers receive financing in relation to their receivables (money for goods/services delivered) by a process that is started by the ordering company

• Allows the supplying company (SME) to receive better finance terms than it would otherwise be able to receive from a lender

• The deal is based entirely on the credit-worthiness of the “Anchor” buyer


Simply put, Reverse factoring is when a lending institution,

interposes itself between a Buyer and its Suppliers, and commits to

pay the Buyer’s Accounts Payables (its Suppliers 'accounts

receivables) at an accelerated rate (often termed as “early pay” in

exchange for a discount, primarily driven by enabled technology

platform.

The Funder as a Paying Agent, funds a Buyer’s supplier receives in

relation to their receivables (money for goods/services delivered) by

a process that is started by the ordering company (Buyer). It allows

the supplying company to receive early payments on better finance

terms (discount fee) than it would otherwise be able to receive from

a lender on its own merit.

What is Reverse Factoring?

Supply Chain Finance (SCF)Reverse factoring, or approved payables finance, allows Supplier to

receive early payment with a discount, on an invoice due to be paid

by Buyer.

Buyer approves the invoice for payment and arranges for early

payment by means of finance raised from a lender, who relies on the

creditworthiness of the Buyer without recourse to the Supplier.

The lender charges a discounting fee to the Supplier (cost of early

pay) lower than what it would normally cost them for financing

receivables.

The arbitrage opportunity on the difference of cost of capital

between large buying organizations and their smaller suppliers makes

these vehicles popular for organizations that may not want to use

their own capital to fund trade payables.

A win-win for Supplier and Buyer

SCF / Reverse Factoring Flows

Goods

Invoice

LENDER

SELLER(SME)

BUYER(Anchor)

Fin

ancin

g

Pays

Invoices

1. Anchor Buyer creates purchase

order to buy goods from SME

Seller

2. SME Seller delivers goods to

Buyer

3. SME Seller issues invoice to

Buyer

4. Buyer sends invoices,

confirmation and approval to

Lender/ Platform

5. Seller asks Lender/ Platform for

discount facility

6. Lender/Platform provides

discounted finance

7. Buyer pays invoice to Lender/

Platform

1

2

5

6

4

7SCF Platform

Purchase Order

3

SCF / Reverse Factoring Flows - Roles

FACTORSELLER BUYER

• Can be

• Bank

• Non-Bank

• FinTech

• Also called “Factoring

Provider”

• Purchases receivable

from Seller

• Can be

• Manufacturer

• Farmer

• Producer

• Service Provider


• Also called “Client”

• Is originally owed payment

from the Buyer for product

or services purchased

(Creation of Receivables)

• Can be

• Distributor

• Retailer


• Government

• Also called “Customer” or

“Debtor”

• Originally owes payment to

the Seller for product or

services purchased


Goods

Invoice

LENDER

SELLER(SME)

BUYER(Anchor)

Fin

ancin

g

Pays

Invoices



Seller


Buyer


Buyer



Lender/ Platform

5. Seller asks Lender/ Platform for

discount facility


discounted finance


Platform

1

2

5

6

4

7SCF Platform

Purchase Order

3


Goods

Invoice

LENDER

SELLER(SME)

BUYER(Anchor)

Fin

ancin

g

Pays

Invoices



Seller


Buyer


Buyer



Lender/ Platform

5. Seller asks Lender/Platform for

discount facility


discounted finance


Platform

1

2

5

6

4

7SCF Platform

Purchase Order

3


Why is reverse factoring important?

• Suppliers have a difficult relationship with many corporate Buyers

as they dictate their payment terms. Suppliers also do not want

to wait a long time to be funded as they are usually growing

businesses with high capital expenditure costs. Conversely,

suppliers understand the huge opportunity that is presented to

them when faced with a purchase contract from one of these

large entities.

• Reverse factoring started in the car industry, as it allowed car

companies to work more efficiently with their smaller supply

companies. It also assists in industries where payment delays are

the main fear or roadblock to business.


Key advantages of reverse factoring

• The liability of the funder is concentrated on a large credit

worthy company

• It means that a funder does not have to worry about fraudulent

invoices

• There is clarity for all parties on knowing when payment will be

received; so no long or unnecessary delays

• It limits any disputes as both sides have agreed the invoice

• Reduces supplier cash flow demands and management of

invoices

• It is a validated regime, so as soon as both parties have agreed

to an invoice – the supplier is protected in a later non-payment

event


• A funder only has one party to collect payment from – which is

usually a large corporate

• Close relationships are created between buyers and groups of

suppliers; allowing new companies to work with large corporates

• There is less administration and chasing for payment

• The agreed rate in relation to the whole invoice is advanced,

compared to in a standard discounting scenario where there is a

percentage advance rate with the collecting of a further sum on

payment

• Liability and risk is assumed by the (usually) larger buying

company, so the rate of interest is lower


Benefits

• A simple system set up and there are lower costs involved to the

supplier. The reason is due to the funder taking credit risk on the

large corporate compared to the small supplier. The financier

behind a scheme may also charge the supplier a couple of percent

of their funding line, to join the reverse factoring scheme.

• Provide a line of finance to companies that was previously

inaccessible. Growing suppliers are able to receive funding

quicker, so assisting with their growth and avoiding any potential

insolvency situation. It also important to note that reverse

factoring less expensive than traditional factoring arrangements.


Benefits to Buyer

• Buyer can have longer payment terms with the

suppliers without having to negotiate any other

consideration such as prices (extension of Daily

Payables Outstanding-DPO).

• Trade payables increase so the buyer experiences

efficiency in daily operations. This further results in

working capital optimization for the buyer.


• Buyers can also take benefits of cash discount

while still paying for the invoice at invoice

maturity date. This requires a pre-arrangement

with the lender.

• An off-balance sheet finance option, the overall

balance sheet of the buyer also looks good with

better ratios of trade payables turnover, days

payables outstanding, working capital turnover,

etc. This helps in raising other sources of finance at

better rates.


Benefits to Supplier

• Receive payments for 100%of invoice value, less discount

fees

• Reduce Daily Sales Outstanding (DSO)

• Suppliers can get faster access to cash at advantageous

rates. This also results in faster cash conversion

cycle from delivery to cash

• Similar to the buyer’s advantage, the overall balance

sheet of the suppliers also looks good and they can get

future finance at better rates.

https://efinancemanagement.com/working-capital-financing/cash-conversion-cycle


• Opportunity to discount receivables at a better rate

than other trade finance options by leveraging Buyer

credit

• Early cash without pledging other tangible

collaterals, with the privileges for insurance against

default of the Buyer without extra costs

• Supplier, with credit challenge, gains access to

credit from a financial institution for as long as it

sells products or services to a credit worthy Buyer,

with a prerequisite of undisputed sales and pre

approved invoices

Factoring Versus Reverse Factoring

A) Traditional Factoring

Seller

Buyer 1

Buyer 2

Buyer 3

Factor

B) Reverse Factoring

Anchor BuyerCustomer

Supplier 1

Supplier 2

Supplier 3

Lender/Factor

Factoring

(no anchor needed)

Reverse Factoring

(requires an Anchor)

Advance Rate 80-90% 100% (less fees)

Security Short term AR None – relies on Anchor ability to pay

– Purchased Invoice

Fee payer Supplier who takes out facility Anchor’s Suppliers

Operations Invoices submitted and approved on

individual basis

Buyer approved, Supplier initiated,

discretionary

Arbitrage Savings None Anchor can reduce COGS or increase

payable days

Structure True sale of receivables but

ultimately a secured loan

True sale, off balance sheet finance

for both Anchor and Suppliers

Recourse? Recourse and non-recourse Non-recourse

Collections Lender Lender via automated platform

Factoring Versus Reverse Factoring

Types of Lending with Movables

87

Thank You!

Connect on LinkedIn

Bob Trojan: [email protected]

88

mailto:[email protected]

A Workshop Program Designed for SMEs - AMBD SME Presentation.pdf · A Workshop Program Designed for...

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