Collaborate on on Invoice Discount Example for Finance with Ease Using airSlate SignNow

On invoice discount example for Finance

hi i'm bellefinder and welcome to our video series on legal issues affecting your business today i'll be talking to you about the hot topic of the moment invoice and supply chain financing invoice financing has taken a bit of a beating in the last few weeks and i want to quickly go through some of the good some of the bad and some of the ugly aspects of invoice financing all businesses need working capital and the easiest way to access working capital for companies that can't have access to traditional banking would be to sell its invoices invoice financing broadly forms or falls into one of two categories one would be receivables financing where a supplier takes its pool of invoices that it has from various buyers and sells it to a funder a funder then will pay it ahead of time for the invoice dates thereby giving the supplier access to liquidity on the flip side we have something on the second category we have something known as payables financing payable financing is similar but instead of the supplier initiating the funding it is the buyer who initiates the funding so a buyer typically a large mnc will pull together all of its invoices all of its payables to various suppliers and then sell that on to a funder in receivables and payables financing the outcome is the same the supplier gets access to liquidity ahead of its invoice due date for a discount but there are some key differences and we'll talk about that in the next section for funding companies it is a question of risk profiling when they're looking at receivables financing versus payables financing when it comes to roosevelt's financing as mentioned before effectively the funder is hedging his risk across various buyers who might default and might not be able to pay when it comes to payables financing the concentration of the risk falls squarely on one large buyer this might tempt a buyer to negotiate for longer payment terms with its supplier now no one feels any any issue with that because the supplier still gets paid on time the funder sale funds and gets its margin and the buyer however gets the best benefit the buyer gets to hold on to its dollar for an additional longer period of time the big controversy that goes on with supply chain financing is how this additional dollar is being accounted for in the financial statements of the buyer now a trade payable is often booked differently as uh as opposed to a debt and this could make all the difference not just to the buyer not just to the funder but everyone who's relying on the financial statements of this buyer this can include other lenders other suppliers other funding programs as well as credit insurers at the same time with no international regulations mandating how supply chain is to be booked in financial statements there is a risk of a lack of financial disclosure of a distorting of financial health of a company and in the cases that we've seen before sometimes leading up to catastrophic collapses of a company have you ever wondered why a company collapses all of a sudden let's talk about some of the ugly aspects of invoice financing in particular supply chain financing has taken a really bad rep in the last few weeks why is that so it is meant to be the most traditional and conservative form of financing supply chain financing requires volumes of invoices to be funded at any point of time and with any business model that requires volumes issues or certain key aspects of the documents might get overlooked when dealing with a traditional trade finance a banking team could take weeks maybe months looking at the trade structure the trade flow where the assets are going and counterparty risk with supply chain financing programs sometimes all i've seen is just an invoice just one invoice on a piece of paper is enough to give you access to a couple of million worth of dollars of receivables financing authenticity of key documents such as bls or assignments received by buyers might not get tested we see a lot of cases with forgery of assignment notices being discovered much later on at the same time the level of investigation or analysis into whether trade has existed or whether documents have been duplicated does not go through the same level of rigor as it would in a traditional finance structure ultimately an invoice financer is looking more at the invoices and the counterparty risk that he is looking at the trade structure itself and when that happens there is always a risk of fictitious invoices or phantom trades and of fudge documents i hope you found this video useful we'll be hosting a webinar in the next few weeks on this very topic i look forward to your participation thank you