January 14, 2017

THANKS ANGLOSPHERE:

How fintech firms are helping to revolutionise supply-chain finance (The Economist, Jan 12th 2017)

The details vary but their basic approach is to take advantage of buyers' low credit risk to pay suppliers' invoices promptly. The buyer--a large supermarket chain, say--approves a supplier's invoice and transmits it to the fintech lender. (The lender can raise money in different ways: Greensill raises funds in the capital markets.) The lender pays the supplier on the agreed date or, if requested, earlier, less a small discount. With interest rates at present low, the period of finance short and the credit risk that of the supermarket chain rather than the supplier itself, the discount may be so low as to be almost unnoticeable. The lender later collects the full value of the invoice from the buyer. This improves the cashflow for suppliers without shortening payment terms for buyers, freeing up working capital for both parties and creating a healthier, more secure supply chain.

In America and Britain, government initiatives have encouraged supply-chain financing as a means for corporations to support small businesses and meet social-responsibility goals. The more integrated approach also means buyer and supplier are not pitted against each other, squabbling over when the cash will be forthcoming. According to Mr Greensill, his clients have enjoyed improved relationships with their suppliers.

Posted by at January 14, 2017 12:01 PM

  

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