Receivable Finance

What is Receivables Finance?

Simply put, receivables finance comprises:

Any arrangement providing credit to a party, using an amount payable by one party to another for goods or services, should be included in the scope of receivables finance.

Purpose of Receivable Finance?

The generation of receivables is a key factor in any trade finance arrangement. A party (the seller) sells something to another party (the buyer), and the payment by the buyer, until the time when it is paid, is a receivable. It is an asset which the seller has, and a liability which the buyer has. 

The seller wants to convert the receivable into cash as soon as possible, as it is important for their business; i.e. faster conversion of receivables into cash reduces the amount of working capital requirement of the seller. 

On the other hand, the buyer wants as much time as possible before they must pay the receivable. As more quickly it has to pay, the more working capital it needs for its business before it can utilise whatever it has bought.

This apparent conflict, is the primary reason that the parties seek solutions in the arena of receivables financing.