THE ISSUE

Working Capital is integral to companies from a financial and operational standpoint; companies with poor working capital performance require more funding to grow, and make up the largest percentages of business failures and insolvencies.

The negative effects are sharpest during periods of contracting credit cycle, and “the regulatory environment is designed to squeeze risk out of the banking sector, which will mean less lending...” James Nixon, Chief Economist, Financial Trade Services Body TheCityUK

A consequential symptom of this existential paradigm, is that corporates continue to borrow Trade Credit (Days Payables less Days Receivables) at an alarming rate, as a quick and easy way to cover working capital gaps.

The implicit costs and systemic risks of doing so are very high as slower payment terms hinder revenue growth and crowd out long-term investment. This is especially true for corporates with limited options of borrowing financial capital - predominantly SMEs.

SCF & Receivables Financing / Factoring programmes, fall short of providing a viable, comprehensive and scalable solution:

• Bank-dependant offerings are subject to the same regulatory constraints; often restricting them to the largest IG corporates
• Non-bank platforms are critically hamstrung, deposit-based lending structures; making them expensive and unscalable
• Platforms tend to have burdensome on-boarding and administrative costs; making them cost-neutral at best for banks to offer
• Credit assessment methods use 'validating' models to underwrite transactions, which rely on processes that are orthogonal to the risks of financing them