Receivables Financing Know Your Product Corporate Advisory Resources FZE

Receivables Financing – Simple Concept A owes money to B B says to C “A owes me money; can you advance me funds and when A pays me, I’ll pay you with interest?” C gives B money A pays B B repays C, with interest Everybody is happy! Corporate Advisory Resources FZE

Receivables Financing – Definition Supply Chain Finance is defined as the ‘use of financing and risk mitigation practices and techniques to optimise the management of the working capital and liquidity invested in supply chain processes and transactions. SCF is typically applied to open account trade and is triggered by supply chain events. Visibility of underlying trade flows by the finance provider(s) is a necessary component of such financing arrangements which can be enabled by a technology platform’. Standard Definitions for Techniques of Supply Chain Finance - Global Supply Chain Finance Forum Corporate Advisory Resources FZE

Receivables – An Easily Financed Asset Known value Self liquidating in a short period of time – 30/60/90 days Often better credit rating than selling/borrowing entity Generally available as a portfolio so risk spread Can be insured to reduce risk further Gives liquidity where in less liquid industries/geographies Can be purchased or borrowed against with or without recourse to the seller Low risk so should have keen pricing Different structures available Corporate Advisory Resources FZE

BUT Wide Range of Options – Need to Know What is Most Appropriate Different techniques - receivables discounting, forfaiting, factoring and payable finance With or without recourse/limited recourse? Borrowing or purchase or ABL or securitisation? Insured or uninsured – credit insurance has waiting period; catastrophe cover Retain credit operations or factor or forfait? Portfolio or specific credits? Would you like fries with that or ketchup or mayo, do you want a side salad… Corporate Advisory Resources FZE

More to Think About…… Position vs other borrowings (asset already pledged; financial indebtedness prohibited?) Do your contracts with customers restrict or prohibit assignment of receivables – do you want to avoid that in the first place when negotiating contracts? On or off balance sheet? True sale – satisfy IAS 39/IFRS 9 Which law – English, other jurisdiction, is an assignment needed? Specific terms – definition of ineligibles; reporting requirements Dilution rates – does the nature of your business require regular credits Concentration – reliance on one or a small number of large customers Corporate Advisory Resources FZE

….And More to Think About……. Cost – just interest or fee per invoice? Advance rate - 100%? 90%? 85%? At what point does receivable become receivable? On shipping, on delivery, on order? Are INCOTERMS relevant? What documentation is required to prove a receivable to permit finance What reporting requirements are there – daily, weekly, monthly Due diligence – these aren’t CDO’s! Provisions, cancellable limits, uncommitted facilities….. Corporate Advisory Resources FZE

…And More to Think About Facility rises or falls with level of receivables – may be coming down when you need funds most Disclosed or undisclosed If disclosed, what will my customers say? - Aren’t receivables facilities just for companies going bust? Product returns – lender issue Can I finance contract receivables? Can I not just have a revolving credit facility instead….? Corporate Advisory Resources FZE

It’s Not All Bad Can be very flexible Pricing can be very good as opposed to overdraft or similar Does work well for lower credit risk customers (but….) Excellent for high growth companies – can alleviate the issue of overtrading Well established products with known documentation Major developments happening – Fintech disruption, investment funds outside Basle 3 rules and capital weighting, watch this space…. Corporate Advisory Resources FZE