In Focus Commercial Credit


As a consequence of both parties using


the SCF facility, the buyer is typically able to negotiate better payment terms or prices with the supplier – or so the major banks would have you believe.


Embracing the concept Many major multi-nationals have embraced the concept enthusiastically and banks are, naturally, keen to promote the solution as a catch-all answer to cashflow management. Many have instigated special-purpose


subsidiaries as vehicles for offering SCF facilities and are robustly promoting the concept as a means to enter new markets, particularly in Asia-Pacific where payment terms are historically longer and delivery times longer. However, what might at first appear a ‘win-win’ situation for both seller and buyer is not without potential risks. Most SCF facilities are ‘uncommitted’ in nature, meaning they can be withdrawn with minimal notice by the buyer’s bank. If the buyer’s bank withdraws funding, both sides


are left with a contract incorporating extended payment terms which the buyer might have difficulty in meeting and which the seller has come to rely upon. Of even greater concern, to many


If the buyer’s bank withdraws funding, both sides are left with a contract incorporating extended payment terms which the buyer might have difficulty in meeting and which the seller has come to rely upon


commercial enterprises, is the risk that trade payables may be reclassified as bank loans. This can have a profound impact upon the funding capacity of the buyer and will materially alter the balance sheet of both parties. The buyer is constrained by potential funding limits imposed by the bank providing the SCF facility Finally, the insertion of a third interested


party in the buyer-seller relationship creates greater delay and uncertainty in managing the trading relationship; invoice disputes suddenly need the opinion and consent of the buyer’s bank before they can be resolved. SCF undoubtedly has an important role


to play in assisting cashflow management within trade finance for industry. However, credit managers should clearly


be wary of considering it the solution to all problems. CCR


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June 2017 www.CCRMagazine.co.uk 15


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