Unlocking working capital: Why it’s time for receivables finance and securitisation to shine

In recent years, treasury departments seldom considered the opportunities for receivables finance. With other forms of financing inexpensive, the additional operational effort associated with such solutions didn’t seem worth it for many companies.

Today’s elevated rate environment changes everything. Higher borrowing costs now mean the benefits of more complex financing solutions outweigh the extra management bandwidth required for implementation.

With companies increasing inventory due to just-in-case supply chains, working capital is now a top priority. By utilising existing assets, trade receivables securitisation, receivables purchase, and invoice financing can effectively unlock working capital, while directly aligning funding structures to needs.

Moreover, securitisation promotes operational efficiency by encouraging companies to scrutinise their treasury processes and debtor books. It helps standardise credit processes and tighten collection practices, ultimately boosting funding leverage and reducing borrowing costs.

All three of these products enhance cash flow and are generally cheaper than other working capital options due to being asset-backed. However, they vary in structure, purpose, and execution.

Trade receivables securitisation

• Usually used by larger corporates

• Multi-jurisdiction/multi-seller/multi-currency trade receivables pooled and sold to a special purpose vehicle

• Committed finance offering funding certainty

• Facilities operate on a longer-term basis, growing and flexing with the business over time

• Can be bilateral or a club deal

• Access to 'capital market' financing but privately executed and with limited external disclosure requirements

• Larger holds by banks (£500m+) allowing for simpler execution (versus multi-bank facilities)

• Lower funding costs due to regulatory capital treatment and asset-backed, non-recourse nature

• Historically underutilised but interest is growing

Receivables purchase

• Used by companies of all sizes

• More targeted approach with individual receivables sold to a bank at a discount

• Bank assumes credit and collection risk

• Recourse or non-recourse facilities

• Uncommitted financing, offering financing and balance sheet flexibility

Invoice financing

• Usually used by mid-cap companies

• Money borrowed against a portfolio of invoices, potentially in multiple jurisdictions

• Company retains receivables ownership and collection risk

• Full recourse

• Uncommitted financing, offering financing flexibility

One benefit of receivables financing, and Lloyds Bank’s offering in this space, is flexibility: companies can combine receivable purchase and invoice finance, or receivable purchase and securitisation, to meet a range of short- and long-term working capital needs.

“We maintained a back-to-back invoice finance facility for a number of years, before moving to a now £1bn invoice finance/trade receivables securitisation in 2015 – this was a key step in delivering the business’s growth ambitions. Lloyds Bank leads this facility, helping the business to navigate opportunities to expand, and flex the structure as our needs evolve,” explains Theo Chatha, CFO of Bibby Financial Services (BFS), the largest UK non-bank provider of invoice financing to SMEs.

Receivables financing is often viewed as a significant operational burden, but the banking partner analyses the debtor book, processes, and structures, not the company. This analysis often provides valuable insights, revealing varying credit risk and collections practices across business units and jurisdictions. The management and reporting requirements also differ depending on the product, meaning that solutions can be tailored to both client needs and operational bandwidth.

In recent years, fewer companies have used receivables financing due to low conventional financing costs. Companies should therefore seek banks that can thoroughly explain and analyse each product in relation to their specific setup and requirements.

Receivables securitisation, receivables purchase, and invoice financing are complementary, not competing. Consequently, companies should prioritise banks with a product-agnostic approach to get the best solution. This is a key strength in Lloyds Bank’s approach, with the Securitised Products Group and Trade & Working Capital teams delivering a unified product offering.

This approach allows Lloyds Bank to assess clients' operational efficiency and consolidated funding structures holistically, working across all products to identify the best solution. Laurent Christophe, Group Treasurer at Trafigura said “We’ve been a long-standing advocate of securitisation since launching our flagship trade receivable securitisation programme in 2004. It has been transformational and is now a key pillar of our funding strategy. Its reliability has enabled the Group to access working capital efficiently across challenging economic and credit cycles and is an invaluable tool to optimise our working capital.”

As one of the one of the world’s leading players in the global commodities supply chain, Christophe adds “Establishing, operating, and maintaining a securitisation platform requires specific expertise, commitment and stamina, from both the originator and its banks. Lloyds Bank’s capability has been valuable in helping Trafigura develop our program over the years. They have been consistent partners and advisers and are well-equipped to support high-performing treasuries in efficiently funding their working capital.”

To find out more, contact your Lloyds Bank contact or visit Trade solutions | Working Capital | Lloyds Bank Corporate or speak to (12) Michael Hodgson | LinkedIn or  (12) Mansour Davarian | LinkedIn

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