The relevance of selling receivables has significantly increased in recent years and was further endorsed by the global financial crisis in the European region. Companies are using different instruments such as factoring, forfaiting and are participating in reverse factoring programs of their clients.
This trend towards internationally scalable, multi-bank receivables financing programs is higher than ever and has been shown in the current study "Factoring for the New Era – New Perspectives through Digitization and Platforms", conducted by F.A.Z. Business Media Research together with CRX Markets. Based on a recent survey of 140 CFOs, treasurers, and financial decision-makers in Germany, 71% of respondents state that factoring is the most important financing instrument to support the sales department. Not only demand, but also the set of requirements for a receivables financing program has changed significantly due to complex global supply chains and advancing digitalization. There are hardly any differences between large, listed companies and well-positioned SMEs. Various discussions with corporates from the study clarify that the most important requirements for a receivables financing program are as follows:
It should be possible to control timing and amount of the sale of receivables with full flexibility at any time to mitigate risks in a timely manner and optimally manage cash flows. Tendering obligations should be avoided in order to react flexibly with changing liquidity situations, e.g., due to seasonal fluctuations.
Breaking up the value chain also plays an important role for treasury when selling receivables. The technical infrastructure and related costs should be separated from financing conditions to provide more transparency. Platforms enable competition-oriented financing conditions, which can be controlled by the receivable’s seller (e.g. maximum accepted bank spread). To ensure international scalability, there is a strategic need to add further financing partners, jurisdictions, or currencies in a simple and straightforward way, at any time.
The current market situation very clearly illustrates the importance of flexible and scalable cash flow management with a reliable financing structure. The financing partners should be freely selectable from a large pool, so that the overall coverage of the portfolio debtor risks being sold, is secured. In addition, they should compete to ensure attractive pricing. If required, exclusive allocation for active wallet sharing can be enabled.
Instead of traditional banking and factoring approaches, more and more companies are turning to fintech solu-tions that ensure the integration of all processes, including the booking of sold receivables in the company’s ERP system. Manual efforts must be avoided in day-to-day business and new projects should be built into company-wide digitalization strategies.
Another benefit provided by a multi-bank receivables financing program is the identical contract documentation for all financing partners. Different jurisdiction-specific requirements and amendments can be flexibly incorporated into the contract at the beginning, but also at any later point in time, to ensure a non-recourse sale of receivables (true sale), including balance sheet improvement for the different jurisdictions.
CRX Markets launched a multi-bank receivables financing solution at the end of 2020 that comprehensively meets all these requirements. Well-known companies such as Knorr-Bremse AG and ZF Friedrichshafen AG are already actively using this solution to flexibly optimize cash flows and mitigate debtor risks. These examples show that FinTechs can deliver significant added value for companies in the trade finance market, especially when a receivables financing program is to be set up on a global scale and with multiple financing partners. Financing partners themselves benefit by being able to focus on the debtor risks, jurisdictions and currencies in which they are most competitive.