Oil Industry - Easing liquidity concerns through factoring

29 September 2018 | By IFA Global

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  • A company had a foreign subsidiary that recently commenced operations and was looking to borrow funds to meet its working capital requirements.
  • The company had a strong presence in India & was dealing with foreign banks.
  • The subsidiary was an exporter whose buyer was a well-established company with an excellent credit rating.

Challenge and Observation

  • Insufficient Credit History: The subsidiary did not have a performance track record on the basis of which banks could sanction limits. Therefore, the banks were sceptical in extending various funded & non-funded limits to the subsidiary.
  • The company was unfamiliar with various trade finance options available.

Observation: 

  • External funding was proving to be quite expensive for the company.

Process

  • IFA Global advised the subsidiary to explore the factoring/forfaiting method of financing.
  • Other forms of financing suggested by IFA to other clients include: LC backed bill discounting, warehouse financing, borrowing base financing, etc.

Outcome

  • The cost to the subsidiary was reduced considerably. Factoring was much cheaper than other sources of funding.
  • The company was able to shorten its cash cycle. It managed to convert its receivables into cash quicker.

 

By IFA Global