Working Capital Finance
The essence of working capital finance is helping companies to manage complexity, reducing risk, supporting suppliers, releasing corporate cash for investment or fuelling growth. This can be achieved via various structures for the financing of accounts receivable and accounts payable, with the aim of enhancing the working capital within the supply chain.
Accounts receivable based programs
Pactum sets up and manages large accounts receivable (AR) finance programs for its clients. In an AR program, a supplier (often referred to as seller) can achieve benefits for itself and its buyers via selling its accounts receivable to a funder, but with an important enhancement that is the extension of payment terms offered to a portfolio of buyers. AR programmes are therefore a win-win approach for both sellers and buyers. It is a way for sellers to finance sales growth, whilst at the same time reduce credit risk and improve working capital. Buyers benefit too by increasing their liquidity position and Days payable outstanding (DPOs). From the credit standpoint, AR is substantially more complex to handle than accounts payable programmes, but it truly achieves credit risk diversification as it involves the processing of a diversified portfolio of obligors instead of dealing with risk concentration. Balance-sheet wise, AR solutions are an efficient way of financing working capital, as it does not impact debt and it greatly improves the cash flow and liquidity of all participants.
Accounts payable based programs
Pactum provides asset management services for accounts payable based programs. An accounts payable (AP) based program, or Supplier Finance, is a buyer-led program where sellers in the buyer’s supply chain are able to access finance by means of receivables purchase. The technique provides a seller of goods or services with the option of receiving the discounted value of receivables (represented by outstanding invoices) prior to their actual due date and typically at a financing cost aligned with the credit risk of the buyer. The payable continues to be due by the buyer until its due date.
