Oil Industry - Easing liquidity concerns through factoring

• 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.