The perfect storm for working capital?

Updated: Feb 17

Demand spikes and credit tightens


Whilst Covid-19 has hit many sectors of the economy extremely hard, some sectors have

weathered or even grown during the crisis and associated quarantines. Q1 sales have been

strong in the IT, Healthcare, Paper & Packaging and, perhaps unsurprisingly the alcoholic

beverage sectors which have all remained open for business. Far from suffering, these

sectors have, in fact, seen a spike in demand as a result of the virus and associated

quarantines and homeworking.


Even when they have been able to steer the physical challenges of the crisis, many players in

these markets have been unable to take full advantage of this surge in demand due to

disruptions in the availability of working capital. Access to sufficient credit to finance

inventory and receivables is critical for wholesalers and retailers to continue and, more

importantly, grow trading volumes. A reduction in credit, as many of these players are

currently experiencing, actively constrains business and can threaten long term viability.


The reduced headroom on credit limits available to sales channels is coming from two sides

at once. On the one hand, utilisation of existing limits made available by vendors and banks

has increased as sales have concentrated due to surging demand for some products as well

as supply and logistics bottlenecks. At the same time, credit has become scarcer and more

expensive. Banks, investors and credit insurers are flooded with demand for credit, but

cautious due to the less predictable economic outlook and often face internal challenges

themselves that are not consistent with quick decision making. Banks are also being forced

to allocate ever scarcer liquidity amongst greater demand. The combined effect of the

increased utilisation of existing limits and the reduced availability of alternative sources of

working capital is constraining sales and applying increasing pressure to distribution

channels.


One solution to the lack of liquidity in the conventional working capital space is Sales

Finance. Sales Finance allows vendors to provide support to trading partners by extending

the credit periods between the two. Vendors’ invoices are settled 100% when due or even

early, freeing up vendors’ credit limits for their buyers, while buyers pay later, enabling

them to finance inventory and receivables from their customers. Importantly, Sales Finance

is not factoring or Supply Chain Finance – documentation and implementation is simple and

fast. Vendors therefore benefit from sales finance by offering extended payment terms to

their key buyers on a fully non-recourse basis whilst being paid early themselves. Credit

limits are quickly freed up allowing greater sales and DSO related metrics improved.

Extended credit terms and increased credit limits in turn allow buyers to increase purchases

from the vendors thereby upping turnover significantly.




Sales Finance manages peak credit demands, allowing vendors and partners to continue

trading even when the partners’ core credit facilities are fully utilised. The cost of Sales

Finance is often covered by existing cash discounts from the vendor, such as early or prompt

settlement discounts. This can mean that there is no incremental cost for the vendor, while

the partner is able to defer payment until a later date, often while still maintaining existing

profit margins.




The Levantor Capital sales finance program is extremely light touch with minimal

documentation and the option of digital signatures. The program is driven by a proprietary

technology platform which ensures efficiency and accuracy. Financing is sourced from a

large panel of bank and non-bank funders meaning that pricing is always as competitive as

possible. The multi-bank platform also ensures the greatest possible stability in the offering

as events that might adversely impact any one particular funder can be mitigated by

increasing funding from a different source. There are no fees or minimum utilisation levels

so it provides genuine incremental credit to cover peak sales periods.


Should you require any further information on sales finance or on Levantor

Capital, feel free to reach out to David Frye at david.frye@levantor.com.










#financing #fintech

LEVANTOR CAPITAL

United Kingdom & Switzerland

info@levantor.com 

+44 (0) 20 3687 0837

+41 (0) 22 796 58 59

Levantor Capital Limited 2021 All Rights Reserved

  • Levantor