Financial Times recently published an article on Supply Chain Finance, featuring Kevin Day, CEO of member HPD LendScape.
The Australian financier behind the now collapsed finance group Greensill Capital pitched his business as an agent of “technological disruption” that aimed at “democratizing capital.” But what Lex Greensill was actually offering was a new spin on a form of financing that dates back at least 4,000 years to Bronze Age Mesopotamia. The trading of invoices by intermediaries helped finance medieval European commerce, the expansion of the British empire and the 20th century US textile industry. Now, a modern incarnation — in the form of supply chain finance — is attracting a good deal of scrutiny following the failure of Greensill in March. For centuries, financial middlemen — typically banks — lent money to suppliers of goods who did not expect to be paid by their customers for several weeks, until the end products were sold on the open market.
Supply chain finance, which has grown in popularity over the past two decades, switches the creditor relationship. Interest in supply chain finance also increased last year as the pandemic threatened businesses and made their suppliers increasingly vulnerable. Rating agencies, regulators, and auditors have long complained about the lack of disclosure on supply-chain finance debt. But, despite the collapse of Greensill and the increased focus on this particular financing model, banks are unlikely to move out of the market.
“It fulfills a need, and the banks are all very comfortable with what they are doing,” said Kevin Day, chief executive of HPD Lendscape, a SCF and other working capital financing technology provider. “It’s all run within quite safe parameters, and there is lots of experience in terms of the levels of funding to offer and risk diversification.”
Most new entrants offering supply chain finance are looking for “quite high returns,” Day said. “But this is not a high return sector.”
Read more about Kevin Day’s insights and this article here>