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WHAT IS A FINANCIAL FINANCE?
Supply chain financing, also known as reverse factoring, is a way for companies to get money from banks and currencies like Greensill Capital to pay for their suppliers without pouring into their working capital.
In a typical example, a company such as a chain of supermarkets, concerned about their small food suppliers in a panic like the COVID-19 pandemic, comes to their bank.
The small suppliers invoice the supermarket, which proves to the bank that they are valid. These providers then get their money immediately from the bank, instead of waiting 30 days or even months for the seller to pay them.
At the height of the COVID-19 crisis, the use of supply chain financing is reported to have peaked in Europe, with banking providers alone earning around $ 27 billion in taxes, data from Consortium shows.
WHY IS IT FOR SCRUTINY?
Supply chain finance does not have the same disclosure requirements for ordinary debt.
Involved companies often simply say “we have an arrangement with suppliers for early payments” in their accounts, which gives the same real impression that they are effectively taking on debt. could be great for paying suppliers.
This often doesn’t come to light until a company gets into trouble, a risk that has led credit rating agency Moody’s to supply supply chain financing to “tiger catches”.
Carillion Britain, Abengoa of Spain and NMC Health of the United Arab Emirates are high examples of companies that have fallen on the weight of debt, much of it undisclosed.
WHY DO GREENSILL FIT IN?
Founded by Lex Greensill, a former Citigroup and Morgan Stanley banker and adviser to the British government, Greensill is the largest non-bank provider of supply chain financing.
Its technology-led approach has provided $ 143 billion in funding in 2019 across 10 million customers and suppliers.
In 2019, it received $ 1.455 billion in funding over two rounds from the SoftBank Vision Fund, one of the largest venture capital funds in the world.
A spokesman told Reuters in December that it saw industry and new business volumes rise in 2020 due to the COVID-19 crisis.
But Credit Suisse and Swiss fund GAM suspended Greensill-linked money this week, forcing it to be in talks over the sale of large parts of the industry.
Reciting by Abhinav Ramnarayan; Edited by Alexander Smith