Textile Industry – Funding mobility through Supply chain financing

• A company had a foreign subsidiary which recently commenced operations and was exploring funding options for its working capital requirements.
• The company had a strong presence in India & was dealing with foreign banks.
• The subsidiary was an exporter. In this case, the subsidiary’s buyer had a better credit rating than the supplier (client).

Challenge and Observation

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

Observation:

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

Process

• IFA Global suggested supply chain financing to the client, under which the financial institution of the buyer arranged funds for the supplier.
• Other forms of financing suggested by IFA to other clients include: LC backed bill discounting, warehouse financing, borrowing base financing, etc.

Outcome

• This arrangement resulted in access to cheaper sources of funding for the supplier, whereas the buyer managed a better credit term & discount from the supplier.
• In all these financing models, the core benefit was in the form of greater flexibility and the underlying covenants were more favourable for the borrower/receiver of funds.
• Through these structures, the cost of funding was managed more optimally.