Key Players in the Receivable Finance Space

Traditional financing of trade receivables has been done by Banks directly and indirectly through credit facilities, by the Capital Markets and by Commercial Financiers. The big difference between Commercial Financiers and Banks is commercial financiers actively monitor collateral daily by requiring reporting of receivables as they are created and taking possession of payments from customers as they are received, while bank financiers typically take a blanket security interest.

Bank Markets offer factoring, invoice discounting and commercial finance or asset‐based loans (ABL). ABL are usually written on receivables and inventory, and lenders screen the books extensively to decide which receivables are eligible for the "borrowing base."

Capital Markets offer trade receivables securitisation (usually Asset Backed Commercial Paper funding). Securitization is a debt technique where a company pledges its assets including accounts receivable and can issue commercial paper or receive a loan - these programs typically fund a percentage of every $1 (eg. $0.85 for every $1 of eligible receivables) due to over collaterization requirements. Securitization has limits on obligors included (e.g. only 10% Walmart receivables) and impacts debt ratios. 

Specialty Finance companies offer asset based lending, factoring, invoice discounting, purchase finance and purchase order finance. Many now offer Merchant Cash Advance loans as well.

Often receivables are simply “lumped into” support for Revolving Credit Facilities (RCF). Debt instruments may be “secured” with pledges of assets by the corporate borrower; asset pledges may include accounts receivable. Commercial finance loans are truly “asset-based” and the amount of the loans will bear a direct relationship to the amount of collateral available.

Other major players in the Receivables Finance space are less well known and include platform and managed service providers and Business Development Corporations or “BDCs”.

Platform and managed service providers

These service providers include those companies that may do a combination of origination, brokering, platform management, and managed services to make asset backed lending and receivable securitization structures happen. Vendors such as Aronova, Demica, Finacity and GSCF are not household names, but help manage billions of dollars of receivables through their platform, either for banks or increasingly for the non bank market.

Business development corporations

A Business Development Company ("BDC") is a form of a publicly registered company in the United States that invests in small and mid-sized businesses. They can invest in a wide range of loans, including subprime auto, equipment leasing, aircraft finance, commercial real estate, but many are focused on the middle market lending space, where yields can be attractive.   They differ from venture capital and private equity funds since as a registered company, investors can buy BDCs listed on the public exchange.  While BDCs are publically traded, their assets are marked to market every quarter. They are the same as closed end funds.

In summary, trade receivables are short-term in nature, and these are the type of structures global banks can shrink if they need to reduce assets. As more global banks look to shrink their asset base, I expect the specialty players to get an increasing share of middle market finance deals, especially as a new class of service providers with both technology and managed services arrives to help.

Don't forget to sign up for TFMs weekly digest delivered to your inbox every Monday here 

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.