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How the Contagion Effect Could Blow Up Network Finance

In the real world, you plan for an event and it works out for a while. Then things fall apart. So you react and plan more — hoping to stop the problem from creating a contagion effect.

And here you are, thinking that you built this nice network finance model to finance your suppliers not just on approved invoices, but invoices that have been issued, or even more upstream, purchase orders that have been issued. And things have been working smoothly for a couple of quarters, or maybe for even a year or two.

But then it happens. More things fall apart.

The Blurring of Supply Chain Finance Definitions

I often get this question about how factoring and supply chain finance differ from traditional invoice finance. And the real answer is its very murky. There is certainly a blurring between invoice finance, invoice discounting, factoring, supply chain finance and asset-based lending.

By whatever name you want to call it, what really matters is what usury laws are governed by the lending technique and how bankruptcy court will interpret the structure (loan, asset purchase) and what the state or legal jurisdiction laws are in relation to the technique. Definitions are fine to help educate and illustrate, but they are meaningless when it comes to judges and investors.

Supply Chain Finance: Gray Area Abounds on Early Pay Programs, Accounting

Whichever way you look at it and define it, supply chain finance has grown into a big number. And if you define it as using the balance sheet of a large company to offer early payment to some or all of its suppliers, it is has gained in popularity. Plus, it’s not only offered by large banks who can both originate and distribute large-scale programs for the likes of Unilever or Procter & Gamble, but also non-bank asset arrangers like Greensill, Seaport and others working together with source-to-pay platforms or directly with buyers to develop programs. And always in the background we have heard this whispering of accounting treatment. And by now, most people who have dabbled in this space know the issue: Is it trade payable or is it debt? Fewer understand the implications.

Reverse Factoring: 5 Tips to Avoid Supply Chain Finance Foul Ups

Over on Spend Matters, I recently shared two reverse factoring case studies, courtesy of Kyriba’s Eric Riddle and Wells Fargo’s Stephen Elson, who presented at CFA’s Supply Chain Finance/Factoring World event in Miami, which took place last week. The panel absolutely nailed the key success factories in traditional reverse factoring programs. So how do you avoid supply chain finance foul ups? Read on.

UNCTAD Calls for Reform to International Monetary System

Tianjin

The United Nations Conference on Trade and Development (UNCTAD) is calling for reforms to the international monetary system, saying the need for government to support long-term development finance on domestic and international levels has “not been met” thus far. Trade Financing Matters believes that alternative financing models based on tech-enabled receivables financing and payables financing offer strong potential to serve developing markets.