Innovative commercial finance underwriting can profitably ignite economic recovery

The current economic slump creates a trade finance paradox:

• Banks do not grant new credit limits, tight be regulatory constraints.
• Credit insurers face deep losses on traditional credit insurance schemes.
• Credit reinsurers have substantial reinsurance capacity available but cannot place it.

The result: major losses for all parties.

Heading towards a highly effective paradigm shift

What if a new commercial finance scheme resolves those challenges?

>  Enterprises:
Liquidity on receivables with strong alignment (bearing 50% of credit risk).

>  Professional investors:
Diversification of liquidity deposits in units of receivables with credit enhancement
(i.e. a receivable of 1000.00€ is comprised of 1000.00 units of receivable, creating maximum investment flexibility and decorrelation to receivables).

>  Commercial finance underwriters:
Profitable, scalable senior underwriting opportunities.

Ensuring Vendor’s alignment through effective ‘skin the game’

The new scheme shall need to align the interests of Vendors with those of underwriters:

• The Vendor finances a collateral through the sale of receivables, covering 50% of MPL.
• In case of non-debtor payment, the Vendor collateral is used for 50% of the unpaid amount.
• The collateral capacity is rebuilt following the sale of receivables.

Achieving unmatched commercial finance underwriting profitability

The new scheme shall need to reduce capital and operating costs, and maximise revenues:

• High exposure seniority:
  When a debtor fails to pay at preset conservative dates, the underwriter purchases receivables at 50%
  of the unpaid nominal.
  (NB: Investors receive 100%, with the other 50% paid by the collateral).

• Settlement efficiency:
  Becoming a direct creditor through ownership of receivables at a 50% discount on unpaid principal, simplifies and speeds up settlement negotiations with no/very limited loss before premiums.

• Risk aligned premiums:
  The Vendor bears an underwriting premium per receivable based on the debtor
  D&B credit score, also making the Vendor aware of their credit risk.

Becoming a strategic pillar to economic recovery and growth. Profitably.

Bank funding and traditional credit insurance deeply suffer in these troubled times.
At the same time, securitizations and commercial paper funding have become more challenging.

In sponsoring this new commercial finance paradigm, commercial finance underwriters can profitably contribute to the post COVID-19 revival of the ecosystem:

• Speed up working capital funding.
• Save enterprises from non-payment with significantly reduced risk.
• Indirectly improve banks and credit insurers facing insolvency of their enterprise’s clients. 

I am looking forward to your insights and comments on how we can jointly help the real economy to recover.