CFOs eager to fill financing and liquidity gaps are turning to receivables for leverage.
Vincent Ryan, CFO Magazine
April 1, 2010
Vincent, There is another receivables based financing option that is available at much lower cost and with much less administrative overhead called Supply Chain Finance. With SCF, the financing rate is based on the credit rating of the buyer so if the supplier has an investment grade buyer the rate is usually about 2.0% APR to 3.5% APR which translates into about 0.16% to 0.29% of invoice value for an invoice paid 30 days early. That is dramatically cheaper than the options mentioned in your article. Also, there are no additional fees such as facility fees, collateral monitoring fees or field examination fees. In addition, with SCF, the buyer can access funds on demand over the web with no additional administrative burdens of the type you mentioned that are associated with ABL, ie reporting requirements, loss of negotiating flexibility with customers, etc. Plus SCF advances 100% of the funds, there is no 20%+ holdback and there is no recourse back to the supplier. If the buyer does not pay, the supplier still gets to keep the funds. All in all, Supply Chain Finance is a much cheaper and easier receivables based finance solution IF an organization has customers that offer SCF. You may have seen in the Wall Street Journal that Kohls and Wal-Mart are offering SCF to their suppliers so it is increasingly becoming an available option and one that suppliers in the situations you describe might want to consider or recommend to their customers who do not yet offer it. Bob Kramer VP, Working Capital Solutions PrimeRevenue, Inc.
Posted by Robert Kramer | April 12, 2010 07:21 pm
In 2010, with liquity severely constrained, dynamic discounted plays a crucial role for both buyers and suppliers. For the buyer, a significant return on capital can be gained by negotiating a discount for early payment and for the supplier, much needed cashflow can be financed without the need for the banks. Google or search on YouTube for "Dynamic Discounting".
Posted by Pete Loughlin | April 10, 2010 03:43 am© CFO Publishing Corporation 2009. All rights reserved.