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From Alternative to No Alternative Financing

by Helen Sanders, Editor

We are all aware that most companies are finding it more difficult to access credit from their banks, and that the cost of doing so has increased. Alternative financing, such as factoring and reverse factoring, formerly the domain of smaller companies, is now becoming an important element in the financing portfolio for companies of all sizes. Furthermore, with Basel III looming, with its more stringent capital requirements for banks, and continued economic uncertainty, this trend is set to continue.

For those in any doubt, ‘alternative’ financing is not the same at all as ‘alternative’ music. No long skirts, unwashed feet or dodgy drummers are involved; instead, ‘alternative’ financing refers to a wide range of techniques from receivables financing through to pre-shipment, supply chain and distributor financing (figure 1). This article does not discuss supply chain or distributor financing, which has been covered in other recent articles in TMI, but rather asset-based financing such as purchase order and receivables financing. However, these techniques are also enjoying considerable growth as larger companies in particular seek to increase the resilience of their supply chain and sales channels. Unlike bank credit lines, where a company can draw down as much as required within a facility limit, alternative, structured or asset-based financing has a direct relationship with a company’s financial assets, such as receivables. Neil Clinton, Head of Large Corporates, Barclays explains,

“Over the past few years, receivables financing has become a more and more attractive way of providing finance, especially in the SME space. However, during the financial crisis we have seen a greater interest in a wide range of asset-based lending solutions. We have therefore developed a comprehensive asset-based lending portfolio, and are increasingly using our knowledge of our clients’ business to structure a financing solution around their assets to meet their future financing requirements.”

He emphasises,

“Large corporates as well as smaller companies have become more cautious, leaner, and have a greater focus on managing their cash flow needs effectively.”

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