Receivables Finance

Euromoney Learning Solutions

How long?

  • 3 days
  • in person

Euromoney Learning Solutions

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About the course

Our Receivables Finance course allows the participant to gain a practical insight into the financing of trade receivables. The course will cover the key receivable finance structures, risk assessment and operation.

The key risks encountered in open account transactions will be discussed together with the key corporate drivers which underpin the need for financing and risk mitigation. The importance of the days sales outstanding ‘DSO’ ratio to the working capital cycle and management of credit and liquidity risk will be highlighted.

Emphasis is placed upon risk evaluation, facility structuring and risk mitigation. Attention is paid to the effective and appropriate use of receivables financing in meeting the seller’s needs, whilst satisfying the requirement for controlled financing and credit support.

The course uses extensive case studies1 and exercises to develop the understanding of attendees in a practical and engaging way across a range of scenarios on the identification of risk, risk mitigation, structuring techniques and providing optimal working capital solutions for the bank and the corporate

The case studies and exercises described are provided for indicative purposes only.

By attending this training course, the delegates will be able to:

  • Identify key corporate drivers and satisfy these through the use of receivables finance
  • Appreciate the importance of the underlying commercial contract and Incoterms® rules when financing open account trade receivables
  • Understand the key differences in credit risk assessment of a structured receivables finance proposition compared with conventional lending
  • Gather information to assess and evaluate the financing proposition
  • Undertake effective risk analysis
  • Evaluate the terms and conditions of credit insurance as a risk enhancing tool for finance
  • Construct a trade cycle timeline to evaluate financing needs, duration and risks
  • Describe the key trade receivable solutions and when they should be used
  • Structure trade receivables finance to mitigate risk for the seller and the bank and to optimise working capital
  • Appreciate the structure and key terms of a receivable debt purchase agreement

Agenda

Day One Trade and working capital Key client drivers

  • Conflicting requirements of seller and buyer (debtor)
  • Importance and implications of trade credit:
  • Need for credit
  • Credit risk exposure
  • Liquidity risk
  • Working capital optimisation:
  • Cash conversion cycle
  • Importance and calculation of the DSO ratio

Exercise; calculation of the DSO ratio and assessment

Need for receivables finance

  • Financing open account transactions:
  • What receivables finance is and when it should be used
  • Key benefits of receivables finance to the financier and treasurer

Funding the trade cycle

  • The trade cycle:
  • Key stages
  • Alignment of finance
  • Calculation of the receivables finance facility

Exercise; Calculation of the trade receivables facility requirement

Key documentation

  • Incoterms® rules 2020
  • Their relevance and importance to receivables finance:
  • Point or place of delivery
  • Examination of the most commonly used Incoterms® rules
  • Documented proof of delivery

Exercise; consideration of the form of proof of delivery across a range of Incoterms® rules

Commercial contract

  • Key aspects of the commercial contract
  • Its importance to the receivables financier Case study; examination of a commercial contract and identification of areas of risk for the seller and financier and the required amendments to mitigate risk

Nature of the receivable (and implications for finance)

  • Sales invoice (example):
  • Key information:
  • Conformity with purchase order
  • Need for assignment
  • Risk appreciation and mitigation
  • Nature of independent payment obligations:
  • Bill of exchange (example)
  • Promissory note (example)
  • Non-eligible debtors

The debtor listing

  • The importance and use of the debtor listing
  • Ageing
  • Calculation of the debt turn

Exercise; calculation of the debt turn

Day Two Risk evaluation

Seller

  • Credit risk evaluation
  • Intended use of receivables finance

Credit quality of the receivable

  • Debtor; ability to pay
  • Political and country transfer risk
  • Ageing of debtors; debt turn and trend
  • Trade credit period
  • Approved territories
  • Encumbrance; can the financier achieve good title?

Dispute risk

  • Debtor; willingness to pay
  • Nature of goods; product cycle
  • Credit note history; importance of
  • ‘Sell and forget’ transactions

Case study; assessment of dispute risk and formulation of a risk mitigating funding solution

Concentration

  • Spread of debtors
  • Importance and implications
  • Exercise; identification of a concentrated ledger, implications and actions arising

Contra trade

  • Description, identification and assessment
  • Importance and implications

Exercise; identification of contra trade, implications and actions arising

Dilutions

  • Invoice dilutions; nature and implications
  • Credit note history; actions arising
  • Outstanding credit notes; dealing with
  • Authority and provision
  • Dealing with dilutions

Deal structuring

Principles

  • Concept of the self-liquidating facility
  • Debt purchase versus advance

Prepayment

  • Nature and operation
  • Determining the amount to finance (prepay)
  • Calculation and charging of interest

Calculation of the credit facility

  • Maximum funds in use ‘MAFIU’
  • Funding limits

Exercise; calculation of the maximum funds in use credit facility limit

Disclosed and non-disclosed facilities

  • Operation of disclosed and non-disclosed facilities
  • Risk implications
  • When to use

Rights of recourse

  • With recourse facilities
  • Without recourse facilities
  • Repurchase events
  • Limited recourse
  • Deciding factors on which to use

Retention of title

  • Types; transactional and ‘all monies’
  • Operation and use
  • Importance when using credit insurance
  • Commercial contract provision

Exercise; identification of contra trade, implications and actions arising

Capture of the receivable

  • Trust accounts:
  • Use of
  • Risk implications
  • Security
  • Collection account

Trade credit insurance

  • What credit insurance is and when it should be used
  • The use, benefits and limitations of trade credit insurance
  • Types and features of trade credit insurance policies
  • Key aspects of credit insurance policy cover evaluation
  • Performance risk; adherence to policy terms and conditions
  • Claim history of the seller; its relevance to risk assessment
  • Voidance of cover
  • Using credit insurance as a financing tool
  • Importance of the maximum policy payment liability
  • Joint insured and loss payee endorsements
  • Claims and recoveries

Case study; identification of areas of risk from a financier’s perspective in respect of a schedule of credit insurance

Fraud

  • Fictitious ‘fresh air’ invoicing
  • Pre-delivery invoicing
  • Banking proceeds
  • Encumbered trade receivables
  • Multiple financing

Audit and monitoring

  • Monitoring of the facility
  • Key aspects of audit

Day Three

  • Forms of receivables finance
  • Specific insured debt purchase
  • Description
  • Client profile
  • When it should be used
  • Key aspects
  • Operation and process

Case study; structuring of an insured receivables finance solution for the sale of vehicles to a buyer in Africa on three years trade credit

Factoring

  • Description
  • Client profile
  • When it should be used
  • Key aspects
  • Operation and process
  • Hybrid services
  • Comparison with confidential invoice finance

Pool purchase

  • Description
  • Client profile
  • When it should be used
  • Key aspects
  • Operation and process

Forfaiting

  • What forfaiting is and when it is used
  • Description, parties and process
  • Without recourse finance:
  • Events of recourse
  • Primary and secondary purchase
  • Risk appreciation and due diligence
  • ICC URF 800; appreciation

Case study; consideration of a request to purchase an avalised bill of exchange, identification of the risk features and further information required to evaluate the proposition

Facility agreement

  • Key aspects of the debt purchase agreement
  • Representations, warranties and undertakings

Balance sheet treatment

  • Market need for balance sheet management
  • Concept and importance of ‘true sale’
  • De-recognition of assets and liabilities:
  • Linked presentation
  • Separate presentation

Case study; formulation of a receivables financing solution in the manufacturing sector. Identification and evaluation of key areas of risk, calculation of the facility amount, formulation of the structure and deal sheet

Experts

Stephen Jones

Stephen Jones is a highly experienced trade finance practitioner with over 40 years of trade finance expertise (35 of which was gained in the corporate banking environment). He has held senior trade positions in Lloyds Bank, NatWest and RBS.Stephen was the first in NatWest Corporate to win, struc...

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Receivables Finance at Euromoney Learning Solutions

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