How accounts receivable programmes are being democratised by market changes and technology

Once the domain of treasury teams of only the largest global corporations, accounts receivable (AR) financing has in recent years moved within reach of a broader group of businesses. These financially savvy, mid-sized, non-investment grade companies — and their agile finance teams — are using AR financing to both fortify their preferred customers during market downturns and increase their share-of-wallet during periods of growth. By launching AR programmes for trusted buyers, these corporations have created a competitive edge that cuts both ways: decreasing risk, while increasing opportunity. But what has changed to allow this new crop to use AR to their advantage?

Historically, only large multinationals could make use of global AR programmes. Such MNCs possessed the scale to justify employing the sizable finance teams needed to support these programmes with preferred buyers in every relevant geography. Local regulations in some of the most attractive markets necessitated various permits, or even bank licences, to run such programmes. In some cases, these teams accounted for hundreds of employees at a company.

Over the past couple of years, however, Peridot has seen an increasing number of mid-sized companies among its customers. Reliable market data on AR financing uptake by different categories of companies is limited, but it seems that several trends have contributed to the rise of AR programmes in different segments — like mid-sized OEMs and regional corporations with preferred buyers and distribution partners.

Trends that have enabled mid-sized corporations to access AR financing

There are a few key trends underpinning the rise of working capital financing among mid-sized, non-investment grade corporations:

1. Increased adoption of technology: Advances in technology have made AR financing more accessible and operationally efficient for suppliers as well as buyers. Digital platforms and automation tools have streamlined the financing process, reducing the time and cost associated with what have traditionally been highly manual processes.

2. Rising demand for working capital: Companies of all sizes are seeking ways to optimise their working capital to enable profitable growth and take advantage of new opportunities. AR programmes are increasingly viewed as a flexible and accessible source of capital that can be unlocked to fund operations.

3. Expansion of global trade: As global trade continues to grow, companies are looking for ways to manage the complexities of international transactions. AR financing can help to mitigate the risks associated with cross-border trade by providing access to financing and support.

4. Increasing use of supply chain finance: Supply chain finance — which includes AR programmes as well as other solutions, such as accounts payable and inventory financing — has become an increasingly popular tool for optimising working capital and strengthening supply chains. AR financing is often used as part of a broader supply chain finance programme to improve cash flow and reduce risk.

5. Growing focus on sustainability: Sustainability is becoming an increasingly important consideration for companies and investors of all sizes in their capital allocation and investment decisions. AR financing can be used as a tool to support and encourage sustainable supply chain practices by offering financing incentives or other benefits for programmes with suppliers and buyers that meet certain ESG criteria. Peridot and others in the industry can provide reporting visibility into the composition of underlying portfolios. They can also analyse what portion of a suppliers' portfolio relates to sustainable products. ESG is important to Peridot and sustainability variables are considered when evaluating new business opportunities as it continues to grow the portfolio it services. Peridot will monitor developments around ESG in the market and look to be a leader championing its growth .

6. Arrival of new, non-bank funders: New regulations have decreased the appetite for certain credit profiles across the banking sector. In parallel, a rise in technology that allows for better oversight and management of working capital programmes has created an opportunity for alternative lenders.

Companies like Peridot Financing Solutions (PFS) and GSCF offer servicing and reporting capabilities, and full-service AR programmes. They have allowed alternative, non-bank funders to enter the space for the first time without having to build out their own infrastructure to manage portfolios. These funders have a greater appetite for mid-sized companies than banks. Increasingly, these alternative funders are partnering with banks on larger programmes or, in some cases, funding whole programmes by themselves.

Partnering to gain access

Although AR programmes are now within reach of most mid-sized, non-investment grade corporations, there are still hurdles to entry.

Teaming up with a firm like Peridot Group helps mid-sized companies use their partner’s global presence and regulatory infrastructure to support complex programmes with tech-enabled, user-friendly platforms that link into existing ERPs. Peridot operates programmes in over 75 countries and 26 currencies. Unlike other solution providers in this space, Peridot provides in-house credit capabilities as well as other origination, servicing, and collection services. This allows funding to come from alternative asset managers and banks which may lack these in-house competencies. The additional options provide treasurers access to more diversified and stable funding with no restrictions on the use of proceeds which is a benefit of such programmes.

Peridot’s extensive product offering enhances a company’s existing working capital structure and is built to be managed within its existing debt covenant requirements. Such programmes are structured to achieve ‘true sale’ from an accounting perspective for the company, offer 100% advance rates against the assets sold, and have no risk retention requirements, thereby fully transferring a customers’ credit risk.

Globally, the trend in AR financing is towards greater adoption and innovation, as companies seek financial optimisation alongside efficient management of global trade and supply chains.

For a more detailed exploration of how your company can tap into working capital programmes like AR, visit www.peridotfinancing.com to learn more or drop an email at [email protected]