Better Value Working Capital Funding
The cost of Working Capital funding is becoming increasingly challenging for non-financial corporates as economic fragility reduces counter-party confidence and increases the pricing of risk.
Banks & investors will increasingly focus their Capital on assets they are confident are being measured & managed. They will require tangible evidence of effective risk assessment by 'counterparties'/ 'clients' beyond the simple use of credit rating tools. Corporate seeking funding from a diminishing Capital Pool must show they are effective managers of constantly changing counterparty risk. It cannot be left only to Financial Institutions to address Systemic Risk.
Innovative & transparent funding solutions are therefore required that address a fundamental cause of the Global Financial Crisis as Information Asymmetries fueled the crisis By improving the presentation & monitoring of a company's Individual Risk Profile & buyer counterparty risk:-
- High quality trading & risk information can increase Advance Rates. Good business intelligence monitored daily increases risk visibility for all parties to a funding transaction & can reduce 'all-in' funding costs for companies.
- Sustainable funding Structures can be constructed that offer an effective alternative to more established bank-sponsored funding mechanisms.Structures we build support Bank-sponsored or Capital Market transactions, reducing Regulatory costs and enhancing asset risk visibility.
The funding process we specialize in focuses on short-term trade receivables. These assets are sometimes secured in funding arrangements where trade credit insurance has been purchased with the bank named as a 'Loss Payee'. However, this structure provides no economic value to funders Credit Committees as cover can be withdrawn or reduced and is 'conditional', offering no 'effective guarantee' to funders.
This practical funding methodology relies upon the creation of a 'shadow' sales ledger which:-
1) monitors invoice-by-invoice performance of the trade receivables daily.
2) automatically adjusts insured buyer limits based on historical trading & payment performance so that timely action can be taken to avoid deteriorating performance crystallizing into actual 'defaults'.
3) automatically selects insured invoices eligible for funding purposes.
4) monitors compliance with bank covenants.
It is an 'Early Warning System' all counter-parties can trust.'All-in' funding costs compared to more established asset-backed financing methods should reduce by around 20%+ & advance rates increase from around 70% of the total receivables portfolio to 80-95%.
Our role is to help companies unlock this cash by improving transaction size & cost. By improving risk visibility and reducing Reputational and funding liquidity risk, trading confidence among critical partners such as Investors, bank funders & customers can be maintained.
The process is collaborative. It relies on the use of a single 'Early Warning System' by all transaction counter-parties, reducing their reliance on varied & often aged sources of risk information.
