Best of Trade Financing Matters: David Gustin’s Picks
Continuing on with “Best Of” Week on Spend Matters, here are some must-read posts from our sister site, Trade Financing Matters. I asked David Gustin to pick a few that are most pertinent to Spend Matters readers or hold most sentimental value, and the below are what he came back with.
Do banks have something to fear with Demica and its investment bank partners? – “The sale of Demica a few weeks back appeared to be purely a sale initiated by J.M. Huber to the investment bankers JRJ Group, TomsCapital and 76 West Holdings. Let’s face it. This could have been PrimeRevenue being taken out by a hedge fund run by George Soros with deep pockets. All of a sudden, these vendors would no longer need the banks to fund the assets they generate.”
ICC trade loss registry – not credible to investors in trade receivables – “I know I won’t be popular with this post, but I never choose the popularity route. To me, I’ll take quality over quantity any day. And so I have to point out that I think the 2014 International Chamber of Commerce (ICC) Trade Register Report has a ways to go. The report concluded trade transactions for all intent and purposes have practically zero losses. That’s right — zero losses.”
Non-banks using information advantages to finance trade credit – “Networks contain valuable data on the performance history of buyers and their suppliers. Today, most of the financing is done on one event, an approved invoice. Tomorrow, financing could be done based on many events – purchase order, materials ordered, factory about to ship, etc. Funds could be released at certain triggers. Far-fetched? Maybe. But that is where we are moving with many B2B and supplier networks that are using the data contained in their network to enable funders to lend money.”
Chart of the week – size of shadow banking market grows and grows – What does the booming shadow banking market mean for business credit? Why are structural and regulatory changes forcing new entrants? Are we pushing risk where it cannot be seen? Will this be hot money? David discusses these points before getting to the chart in question.
Why Walmart or P&G don't have a $10-billion supply chain finance program – Large global corporations like Nestlé, Unilever, and Proctor & Gamble spend billions on ingredients, commodities, chemicals, and indirect services. Their payment terms create receivables on their suppliers’ balance sheets. These three companies alone spend over $150 billion. So why don’t these companies have huge supply chain finance programs to pay their suppliers with cheap Libor-based money? This paper addresses the challenges with setting up a supply chain finance program, the myriad of legal agreements required, and onboarding.