Socialising Working Capital-Trends And New Models Igor Zax, CFA

Credit Crunch-Where are we? Credit losses only mildly increased so far, while financial markets expect massive increase over time This expectation is likely to become a self fulfilling prophesy

Working Capital Financing and Insurance Trade Receivables % Insured % Financed Europe 35 5 UK 30 6 US 4 In Europe, credit insurance is extremely important Good news if you have it- you may have a high quality asset (despite some cuts in cover) But your supplier may not be the one making decisions

Working Capital Management If you can get paid quickly, do so, but mind the cost (EPD may eat your margins) Finance receivables if you can - and utilise your credit insurance to arrange funding Manage your inventories Be careful with late payment - today people assume worst But try to encourage supplier to extend terms, especially if they still able to insure/finance.

Platform Company Concept Where should working capital be?

Distribution example Supplier Distributor Credit Insurance? Factoring? Securitisation? What credit limit? Sell purchase Supplier Distributor Payment Risks: Distributor credit risk This risk may be highly concentrated Customer credit risk (if distributor has little capital) Product liability (any case) Provides: Marketing/Sales Logistics Service Working Capital Finance? Risk mitigation??? Diversified risk? Low concentrations? Single vs. multi tier?

Distribution example Supplier Distributor-now agent? Credit Insurance? Factoring? Securitisation? What credit limit? Sell Supplier Provides: Marketing/Sales Logistics Service Collections? Performance risk mitigation? Distributor-now agent? Diversified risk? Low concentrations? Single vs multi tier? Low working capital needs

Why Do You Need Working Capital-Business Model? Working Capital needs are related to business model, not necessarily value added Supplier’s prime concern now is risk Variety of legal structures to mitigate risk, while reduce working capital needs Similar models can be applied to contract manufacturing, printing, material processing, etc.

Thank You Igor Zax, CFA igor.zax@googlemail.com 07775708426