GTR recently held its annual GTR Summit in Mumbai. Excerpts from the panel discussions:
Panelists:
Taranjeet Walia, Head, Trade & Working Capital, India, Barclays
Kishor Pradhan, Member of Banking Commission, International Chamber of Commerce (ICC) & Chief Executive Officer, Global Trade Consultancy Services
Mithun Gole, Sr VP – Corporate Finance, Apraava Energy
Jacob Raphael Vangassery, Accountable Executive (India), TASConnect
Tarandeep Singh Lamba, Head, Trade Products, Transaction Banking, Standard Chartered (Moderator)
Taranjeet: For companies getting into long term and fixed price contracts, the receivables as a percentage of overall receivables is increasing. This can be discounted upfront, to manage and optimize their capital cycle. On capex and opex, companies are getting into leasing to deploy capital efficiently. Lease arrangements are typically for 2-5 years and corporates can monetize these lease receivables. They can use promissory notes or bill of exchange to cover the gap in financing. There can also be certain undertaking that the debtor can provide.
Kishor: Asia factoring market is $900 billion and India is $17 billion. We have not utilized factoring the way it should be. In Hong Kong it is $23 billion. India has not been able to get the benefit because of the way of looking at factoring. Most SMEs look at it only as a financing option. But the world is moving from collateral based financing to cashflow base financing. FCI is giving credit protection. I met a bicycle exporter in Ludhiana who was not getting full cover, and hence he was not going for factoring. His turnover was Rs2 billion in 2020. His buyer is in Mexico and his concern was how to control the buyer – he would check his financials about once a year. He could visit Mexico and meet the customer 2-3 times a year. With FCI, the buyer’s risk is covered. So, it is not just financing, but risk coverage. In last 3-4 years, factoring is picking up in the market. There are fintech companies in India and abroad, doing good business and are backed by credit insurance. The minimum volumes on each platform is Rs50 billion a month. How to assess receivable structures? Mostly people do balance sheet analysis. There are 2 types of risk – performance of exporter (eg quality of product) and financial risk. The financial risk is associated with buyer, for which his balance sheet of buyer should be examined. For example, one company was exporting to auto major abroad. Since it did not have a strong balance sheet, banks were not giving credit. We structured it as factoring with credit risk, and the company did factoring for several years.
Jacob: User experience is a critical factor for driving the business. Fintechs have enhanced the user experience. Earlier it would begin with ledgers, invoices, purchase orders, delivery notes, etc. The process would go on to the buyer. Getting the factoring done was a project in itself. Now the user gets an offer and only has to click to accept and the funds flow in.
Mithun: In project sector, the life cycles are very long. Green transition is creating new investments. Most companies in this space are highly leveraged and hence factoring is very helpful, particularly since it is without recourse. It also helps command better terms from banks.
Read more:
