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TRANSCRIPT
Our Team at the conferenceAgenda
• ING Working Capital Solutions - Introduction
• WCS Products – Supply Chain Finance
• WCS Products –Factoring
• Q&A
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Current financial climate has put working capital management on the agenda
Scarcity of liquidity Stricter regulations Economic downturn
• Economic environment pressures profitability
• Will Greece leave the Euro?• Will the Euro survive?• Is China slowing down?
• Basel III and regulation of FI’s are constraining capital and lending
• Liquidity is scarce and banks are deleveraging
• Spanish rescue €100 billion• Falling down
• Working capital management has moved to the top of the agenda
• Treasurers seeking ways to unlock funds trapped in O2C and P2P
• Banks focussing more on flow and trade products
The Dilemma
Payment Date
Buyer Supplier
Collection Date
I want to pay late!
I want to collect early!
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Net cash tied up in working capital impacts the short term liquidity and operational efficiency
Timeline
Order Placed
Cash Paid Out
Order Received
Cash Received
Net Cash Tied up in W/CPurchase to Pay (Payables)
Forecast to Fulfill (Inventory) Order to Cash (Receivables)
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Timeline
Order Placed
Order Received
Cash Paid Out
Cash Received
Net Cash Tied up in W/CPurchase to Pay (Payables)
Forecast to Fulfill (Inventory) Order to Cash (Receivables)
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ING WCS Products help you close the cash gap in working capital
TRPP / Factoring Solutions
Order to Cash
Purchase to Pay (Payables)
Supply Chain Finance
Net cash gap is narrowed by
WCS products
TRPP/Factoring and SCF are looking at different sides of balance sheet
• Focussed on the assets side of B/S
• Single ‘Receivables Purchase Agreement’ with the seller selling a (diversified) pool of trade receivables
• Repayment based on a (diversified) pool of trade receivables
• Focussed on the liabilities side of B/S
• One Buyer, multiple ‘Receivables Purchase Agreements’ with many suppliers
TRPP/Factoring Supply Chain Finance
A/RA/RA/R
Funded
Debtor 1Debtor 2
…Debtor n
Client (‘Seller’)Assets Liabilities
A/R
Supplier X
A/R
A/R
A/P
Funded
Improvedterms
Client (‘Buyer’)Assets Liabilities
Supplier Z
Supplier Y
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Buyer
How does SCF work?
SCF platform
Suppliers2
2. Send goods/services and invoice (business as usual)
3
3. Approve invoice and present on platform (This is new)
“I need cash”
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4. Suppliers needs cash and requests early payment
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5. ING pays invoice amount minus a small fee
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6. Buyer pays ING invoice amount at due date
SuppliersInvoiceInvoice
1
1. Send purchase order (business as usual)
PO
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SCF principles
Method ofworking capital
enhancement
Principles
• Non-recourse funding to key trade suppliers of ING Corporate clients
• Repayment relies on the relatively stronger credit quality of the Buyer
• Robust legal, accounting and tax framework
• Operate through a dedicated web-based platform -> Easy access for all!
• Suppliers (which typically have a worse credit rating than the Buyer) have the option to sell their trade receivables on the Buyer to ING:- before maturity, thereby getting access to non-recourse liquidity ‘on-demand’- at a discount based on the Buyer’s rating, resulting in lower financing cost
• The Buyer:- can monetise the value created for its suppliers by negotiating extended trade
payable terms or increased discounts - settles the payment at par of the trade receivables with ING at maturity date
• ING:- receives a margin reflecting the discount
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• Typically an investment grade Buyer purchases over 70% with non-investment grade suppliers
• The larger the difference in funding costs between Buyer and Suppliers, the more value can be created
Supplier segmentation mechanism
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Investment grade Buyer
€ 0
€ 100
€ 200
€ 300
€ 400
€ 500
€ 600
AA
A
AA
+
AA
AA
-
A+ A A-
BB
B+
BB
B
BB
B-
BB
+
BB
BB
-
B+ B B- 0%
1%
2%
3%
4%
5%
6%
7%
Spend
Cost of Funds
Non-investment grade Suppliers
Supplier’s average funding cost
Buyer’s funding cost
Funding cost differential
SCF benefits for buyer and suppliers
Buyer’sbenefits
Supplier’sbenefits
• Liquidity “on demand” provided by sale of trade receivables before maturity
• Diversification of funding sources
• Competitive funding rate
• Off balance, non-recourse funding, ratio improvement
• Reduction/elimination of credit risk on Buyer and possible savings in credit insurance
• Transparency and information: cash flow forecasting and certainty (full insight in payment status); reconciliation tool; early dispute warning
• Improved terms of trade by
- negotiating extended payment terms and increased discounts
- standardisation of terms; payment frequency
• Automation of payments to key suppliers
• Reduction of operational and payment costs: one single direct debit for total of maturing payments
• Improved global supplier relationships
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Financing1
Commercial Finance
Credit insuranceCredit management
Services2 3
2. Debtoradministration
2. Credit management
1. Financing
3. Credit Insurance
Products of ING Commercial Finance
Simplified Factoring process
The Debtor Our Client
Factoring company
1. Clients delivers product to debtor
2. Client transfers invoice to ING
3. ING pays invoice to client (20% discount)
4. Debtor pays invoice to ING
5. ING pays remaining amount less fee to client
Our fee
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Factoring principles
Principles
• All in invoices are in scope if delivery/performing of product/service is eligible and final
• Don’ts: project financing, BtoC, registred contractors and Intercompany
• Local structures in main European countries, which can also finance/service receivables from other countries
• Selection of debtors possible (concentration up to 30%)
• Full cash dominion by ING Commercial Finance
Recourse
Method
• Financing of a granular or a non-granular pool of trade receivables
• Financing will be made available through overdraft-facility
• Non-recourse or recourse structures, ranging from simple to tailor-made
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Client
Key benefits for client
• Funding- Diversification of funding sources, potentially in addition to clean lending limits (Carve out)- Asset based funding allows competitive pricing- No Finance limit: financing follows growth of the company- Financing is based mainly on quality of portfolio (Secured Financing)- Direct access to cash stuck in receivables
• Off-balance sheet possibility- Improved financial ratios and potentially lower syndicated facility pricing grid
• Simplicity- Flexible structure from simple to tailor-made - Simple features and follow up
• Credit management tool- Management information by Creditview- Possibility to outsource the servicing of the trade receivables - A credit insurance with 100% coverage
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Timeline
Order Placed
Order Received
Cash Paid Out
Cash Received
Net Cash Tied up in W/CPurchase to Pay (Payables)
Forecast to Fulfill (Inventory) Order to Cash (Receivables)
17
ING WCS Products help you close the cash gap in working capital
TRPP / Factoring Solutions
Order to Cash
Purchase to Pay (Payables)
Supply Chain Finance
Net cash gap is narrowed by
WCS products