Financing and Collection
One of the most frequently accessed benefit of a trade risk management
program improved financing. Strengthening your trade receivable security can
result in greater margining and funding, lower interest costs and fewer
other security requirements to support your borrowing.
Traditional bank financing and asset based lending. Assignment of your
credit insurance policy to your lender is the traditional approach to
improving your financing package.
Securitization.
This sophisticated form of off-balance sheet financing is used by most of the largest companies. Securitization programs are structured so that the credit risk is shifted from the borrower to the diversified portfolio of receivables. As such, higher risk company can structure a program with low rates, equivalent to that of the highest quality corporate issuers. Securitization continues to evolve and is now available to mid-market companies with as little as $25 million of receivables. Trade risk management solutions can be used to allow higher risk receivables and higher concentrations to be included in the securitization program.
Factoring.
Factoring is now a more credible alternative for large and higher quality companies. Competitive pressures and the greater use of technology combined with the consolidation of the industry down to a handful of major players have helped transformed the factoring offering. There are three basic services offered by a factor that can usually be used in any combination: 1. Asset based lending; 2. Credit (or bad debt) protection; and 3. Receivable collection. A factoring solution can also be structured to offer many of the benefits of a more sophisticated securitization offering.
Receivables Management Outsourcing.
This business has grown out of the third-party collection industry in
response to companies desire to focus on their core competencies. Large and
mid-sized companies are outsourcing their non-strategic receivables
management activities to lower cost providers with a depth of expertise in
this field. Clients can customize a solution for outsourcing at any point in
the credit-to-cash sales cycle - simply using a service that collects
receivables that are 30 or 60 days past due or setting up a service where
the outsourcing company - in your name - invoices your customers and deals
with all activities to the point until cash is received. This solution can
also be packaged with credit protection and/or financing from other service
providers.