Alternative Business Finance Segment Filled with Confusing Terms and Definitions


The world of trade credit and working capital is changing rapidly with marketplace lenders, P2P lenders, dynamic discounting, spot invoice auctions, unconfirmed invoice financing, etc.  While there is one attempt to define this space (the ICCs Global SCF forum is harmonizing the supply chain finance nomenclature amongst several industry groups) see Global SCF Forum Update on Defining Supply Chain Finance these definitions, while interesting and educational, don’t really matter.

While we all know generally what factoring is, or warehouse receipts, or approved trade payable finance, what really matters is the contracts signed between the various parties lending and receiving money, providing support, platforms, etc.  And while there are general constructs that hold true, just as in any contract, there are also nuisances that matter and have a legal implication.

How does Walmart’s Supply Chain Finance program differ from Siemens?  I don’t know the specifics.  Only the bankers and lenders do.  But it matters.  For example, understanding the company's practice of handling credits is important when evaluating supply chain finance programs. But we label this all supply chain finance because at a high level, it’s based on an obligors balance sheet and approved invoice.  Did they promise or guarantee to pay?  What about if there are supplier set-offs?

If new forms of finance are going to move off a corporates balance sheet to the non bank world, the above and more matter. These are legal issues.  How would definitions that don’t involve a standardize contract be of any use?

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Please contact me at dgustin at with anything you would like to share around this space.  And don't forget to follow David Gustin on Twitter @TFMatters

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