How to reduce supplier onboarding costs through PrimeRevenue’s Electronic Time Drafts

Most of us by now are familiar with the term Supply Chain Finance. We may even know how banks “productize” it by calling it Reverse Factoring, Approved Payable Finance, or some other name – all to indicate leveraging an uncommitted credit facility of an investment grade or near investment grade buyer to provide cheap finance to their suppliers.

We may even be familiar with that fact that when a supplier elects to finance receivables with P&G, Tesco, Sainsbury, etc. this way, they are selling their receivables to the bank or funding provider. This entails much work for the bank to:

  • perfect interest in those receivables to protect themselves in case the supplier is using those receivables as collateral elsewhere. The bank needs to file UCC financing statements when purchasing account receivables. This can take time.
  • get a release from another bank if a supplier has already pledged those receivables. This may be tough these days as second and third tier banks do not want to give up good credits when they are flushed with deposits.

Different jurisdictions will have different requirements, adding to the complexity.

PrimeRevenue’s Electronic Drafts are distinguished from the “sale of a receivable” in two ways:

  1. First, the funding provider purchases the draft at a discount – the legal structure in the U.S. is governed by Articles 3 and 4 in the UCC (whereas sale of receivables are governed by Article 9).
  2. Second, when a large bank rolls out a supply chain finance program for John Deere or Verizon, it typically involves multiple jurisdictions. With Electronic drafts, the financial transaction is contained in the U.S. with the creation of time drafts.

PrimeRevenue has actually put together a good whitepaper on the subject which I recommend interested parties download here.

Several banks and corporates are currently using this program, including Scotiabank, and Bank Montreal. Any corporate could use the program, but you must have the domestic U.S. creation and negotiation of electronic time drafts.

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