CRX Markets Speaks at ITFA SERC Trade Finance Conference and Networking Event

CRX Markets recently attended the ITFA Southern Regional Committee (SERC) Trade Finance Conference and Networking event on June 12th, where they lent their expertise on working capital finance solutions. The event brought together thought leaders from around the industry to break down not only the current market environment, but also the outlook for the future.

One of the highlights of the event was CRX Markets’ Sebastien Kuhn, Senior Sales Manager, sharing his insights on the closing panel discussion “Financing Beyond Maturity: Trends and Challenges in Supply Chain Finance”. With close to 20 years in finance, Sebastien provided a unique perspective to supply chain finance (SCF) and post-maturity payments.

Here are the key takeaways from Sebastien and his fellow panelists’ discussion:

Traditional SCF Programs Face Limitations

Involving procurement and suppliers is sometimes a hurdle for SCF programs. Finance often recognizes early on the benefits of a SCF program on their working capital, but there’s a disconnect with procurement when finance goes to gain their buy-in. Alignment can be challenging since both are often steered by different KPIs, but sign-off from procurement is key. Once procurement does agree, SCF programs require effort and proper execution to realize the business case. Therefore, it’s critical everyone understands the amount of time procurement needs to negotiate with the suppliers and plan accordingly.

While this limitation is widespread, each country presents its own challenges. In France, for example, maximum payment terms allowed by law for trade payables are 60 days, when the average DPO is about 50 days. This points to an issue many suppliers have in incentivizing buyers to pay early. Buyers may not feel it’s worth the effort and there is an opportunity here to create the right incentives.

Post-maturity Financing is a Simple yet Effective Tool

Post-maturity payments offer companies a lot of advantages. They allow a company to pay suppliers on time, and get an additional 60-day payment term. This improves the operational cash flow and optimizes working capital. Post-maturity payments are quick to implement through a fintech platform and don’t require a high level of integration with the IT landscape. They also don’t necessitate any supplier onboarding, supplier authorization, or involvement from procurement. For banks, they benefit from a flexible solution that provides immediate utilization of their credit line and can be combined with other SCF instruments for a holistic approach to working capital finance.

It’s Crucial to Proactively Address Accounting with Post-maturity Payments

Early in the process it’s essential companies consult with their auditors to ensure the right accounting treatment. One of the main concerns is whether the liability to the SCF provider could be reclassified as financial debt rather than another liability, for example. This distinction is particularly important for listed companies, as it can impact financial ratios and how the company is viewed by investors and analysts.

Rating agencies and financial analysts are especially sensitive about tenors. Extensions of up to 60 or 90 days are generally considered to remain within the realm of operational cash flow and are less likely to trigger reclassification. However, extending payment terms beyond this could result in the liability being viewed as financial cash flow, needed to be reclassified as debt.

From an accounting perspective, while the liability will no longer be classified as “trade payables,” legal precedent suggests that it can often still be reported as “trade payables – other liabilities.” This nuance in classification underscores the importance of early and ongoing dialogue with auditors to ensure compliance with accounting standards and to avoid unexpected impacts to financial statements.

To learn more about post-maturity payments and SCF or have one of CRX Markets’ experts speak at your next event, contact their team