Increase In Supply Chain Financing

Posted by Bull Bear Trader | 5/27/2008 06:02:00 PM | | 2 comments »

As reported in a Financial Times article, banks are reporting a 65% increase in the practice of supply chain financing (SCF). This practice essentially involves using a company's unpaid invoices, or receivables, to secure financing. In some cases the company can also receive a lower borrowing rate. As reported:

"SCF involves companies and their suppliers agreeing to extend the payment period to the supplier, who still obtains early payment from the buyer’s bank. The buyer gets the benefit of longer payment times, the supplier lowers its working capital costs, which it can then pass back to the buyer in lower prices. The bank in the middle has the invoices to secure its lending and earns a margin on the loan."
The technique is essentially an alternative to the traditional asset-backed commercial paper market, where banks have also used receivables as the assets to back the paper. When the commercial paper market froze up, many started considering using supply chain financing. While SCF is an alternative source of financing for companies having difficulty obtaining traditional credit, it is also giving some banks a more efficient use of their balance sheet capital.

Looks pretty similar to me. Financial innovation never sleeps ......... or do ways for finding new sources of funding.

2 comments

  1. Christopher // May 28, 2008 at 11:40 AM

    "Financial innovation never sleeps"

    Just like Citigroup

  2. Bull Bear Trader // May 29, 2008 at 7:23 AM

    Yes. I never said it was always good. :-)