Receivables Purchases

Corporate working capital teams , treasurers, and financial officers seek to shorten AR days and reduce credit exposure

As businesses face increasing global supply chain pressure, they ask to extend AR days

Corporates facing long AR days seek to sell down receivables to generate working capital

Selling receivables offers true sale accounting generating cash flow  

Some corporates will price the receivable sale cost upfront in to a specific product, to a large client, or a non-desirable credit risk
Receivables focused in a particular industry can result in highly correlated credit risk

Overlapping jurisdictional risk can increase both credit and operational risk  

Selling receivables improves balance sheet 

 

Risk managers seek to decrease exposures to particular credits and particular sectors

Risk managers at times desire a reduction in credit limits resulting in a need to seek a 3rd party buyer of credit risk

Risk managers do not operate with business line interests as first priority 

Risk managers credit limit reductions can be highly responsive to public equity volatility, market news or industry news 

Banks seek Risk-Weighted Asset capital relief

Non-investment grade credit exposures have punitive risk weighted asset capital  charges and are better managed outside of  banks

Selling of receivables  provides capital relief under Basel accord and the bank capital adequacy framework

Particular jurisdictions or foreign exposures can result in undesirable capital requirements for systematically important financial institutions (SIFI)  

Selling receivables to a commercial paper conduit or a bank for upfront cash and a beneficial interest faces new accounting guidance, causing a reclassification of any subsequent collections to be deemed as cash flows from investing activities