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What forms of supplier fi nancing are there and why is take-up not higher?
TIM There are many forms available and some
new, modern variants have been emerging recently. It’s right that penetration can be low, often only around 10% – and I think one of the reasons for this is that traditional supplier fi nancing has been targeted at larger suppliers and is also quite complicated. There is often a lot of paperwork, with agreements needing to be signed between the supplier and the retailer, the platform provider and the fi nance provider. So it can be pretty convoluted and take time to set up – and can also be fairly infl exible, with fi xed charges that can’t easily be varied. I think that a combination of these factors has traditionally harmed take-up rates.
Another issue behind low penetration lies within retailers themselves, in my view. That is to say that the people who deal with the suppliers – the buyers – often don’t know much about, or don’t concern themselves with, questions of working capital. They are more focused on the price agreement. So there is an education process, a cultural change, needed within some retailers.
BEN
Why would a retailer concern themselves with supplier fi nancing?
For many, it’s about supporting their suppliers. Providing fi nancing can be offered in conjunction with an extension to terms. It’s an extra string to their bow in helping suppliers if and when terms are extended, using their own creditworthiness to reduce the cost of borrowing for suppliers.
TIM
But if a retailer funds the fi nancing, won’t it worsen their own working capital position?
FOCUS 16
Ben Tatham, Director, Cash Management & Turnaround Services
No, it can very much be a win-win. Some major corporates have a very low cost of short-term debt – it can be as low as around Libor, i.e. 0.5%. Whereas for some suppliers, particularly smaller ones, the cost of borrowing can be considerably higher, say, in the region of 5–10%. So there is plenty of room in the middle to fi nd a position that benefi ts both sides.
BEN
So what kinds of new models are you seeing emerge? TIM
There are some much more modern and real-time models coming into the
market. Many of them are based on the peer-to-peer lending idea. But others are platforms where retailers and suppliers agree terms via a third party. One such platform is C2FO, that KPMG has recently entered into an alliance with. C2FO is a US organisation that has come across to the UK market. It is a simple online platform in which agreements can be set up quickly – often in only 2-3 weeks. The retailer, who provides the liquidity, can enter parameters
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SUPPLIER FINANCE
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