Wait or Initiate? About the Right Timing for Supply Chain Finance

In times of fluctuating prices and increased interest rates, treasurers are required to keep an eye on their company's liquidity situation. In addition, geopolitical events, pandemic-related disruptions, and climate change have prompted companies to make their supply chains more resilient. The right supply chain financing solutions not only optimize working capital, but also the entire supply chain. RBI experts Dirk Fehring and Sebastian Kupka explain what matters here.

“When it comes to managing working capital, treasurers should keep an eye on the entire value chain,” advises Sebastian Kupka, Director of Supply Chain Finance at RBI. This is because numerous adjustments can be made along the entire supply chain. “These include improved processes in payables and receivables accounting, such as the automation of invoicing workflows, standardized dunning processes, and the provision of different financing options for suppliers through supply chain finance programs,” says the expert. Working capital solutions are ideal, for example, if a company's suppliers or customers have strong market power and can enforce very short or long payment terms. “Then our customers can close this liquidity gap with structured payables or receivables programs.”

“ “Receivables financing is an attractive solution in the financing mix and a good addition, especially in times of tight liquidity” says Dirk Fehring, Senior Director of Supply Chain Finance at RBI. “Consider seasonal peaks such as purchasing in winter and only selling in spring, planned investments and the associated higher debt, or large orders that pool a lot of liquidity due to advance payments.” Receivables financing is also the method of choice when interest rates are rising or when additional debt is not an option. “It is usually cheaper than other financing options and provides liquidity on the basis of turnover.”

However, this is not a short-term measure, as such programs need to be well planned to adapt to the company's needs.

“Ideally, you should set up a program when you least need it,” advises Sebastian Kupka. “The reasoning is that both the creditworthiness of the receivables seller and  of the receivables pool are relevant to how the structure is designed. The company's creditworthiness  or the payment behavior of the debtors often deteriorates in times of crisis. By the time massive defaults occur, it is usually too late.”

“Another consideration is the balance sheet effects that can be achieved with structured receivables financing,” Dirk Fehring points out. “These products become interesting around the year-end closing or other reporting periods.” However, it is too late to start shortly before this time, as the structuring of receivables programs usually takes three to six months. Payables programs also can be set up in certain types of structures without supplier involvment within six weeks. “In both cases, it makes sense to allow sufficient time, as the balance sheet effects are potentially a strategic interest.”

“With supply chain financing solutions, you should think long-term and invest enough time in implementing the system,” says Sebastian Kupka. Hence, choosing the right partner is crucial. “There are various options for structuring, for example with and without recourse to the seller or cheaper variants with an ABS (CE) policy. This guarantee-like insurance covers defaults at pool level and generally offers better pricing as the rating of the insurance company is used and not that of the receivables pool. In contrast to regular trade credit insurance, the bank receives its money immediately on first demand. On the other hand, we also offer solutions for individual large debtors if no receivables pool is possible.”

“It's important to have a partner who listens, so you can find the best solution for the company together,” says Dirk Fehring. “We have already set up multinational factoring solutions for CEE countries with less common currencies and also facilitated alternative local solutions through our network banks. On the payables side, we offer our own solutions such as confirming via Raiffeisen Factorbank, as well as alternative options such as paying agent models or post-maturity financing solutions in cooperation with  FinTechs. Together with our customers we analyze their individual needs, advise on the pros and cons of various solutions and adapt to their wishes and requirements. Our structures are fully customized.”