Alternatives for Monetizing Trade Payables (or Receivables)

When a large, well-capitalized company is buying goods or services from a small or highly leveraged supplier, it may be in a position to use its own balance sheet to support the supplier. A number of strategies have emerged in recent years to help buyers and suppliers leverage the buyer’s stronger financial position to help the supplier access lower-cost liquidity, often so that the supplier can then offer the buyer extended payment terms. Most of these strategies involve monetization of the supplier’s trade accounts receivable.

The most common forms of trade receivables monetization include open-account–based supply chain finance and negotiable-instrument–based supply chain finance. Together, these two strategies are often referred to as “structured vendor-payables finance” or “reverse factoring.” A third, related strategy is non-recourse receivables purchase, which is often incorrectly referred to as “factoring.”