At the end of 2015, CIC-Credit Mutuel acquired the biggest remaining independent supplier in France of asset-backed financing/factoring, GE FactoFrance. This is a major loss because GE-Facto France was a truly independent company operating outside traditional banking groups. This brought much more flexibility than the banks are able/willing to provide. It has been the saviour companies in turnaround situation. They were able to finance operations without demanding that the company moved their day-to-day banking.
GE-FactoFrance were also valued for its independence, its quality services, the dynamism of its teams and their original approach to client needs. The focus on the quality of trade receivables, rather than just on the customer’s credit quality, enabled them to finance companies that banks would have ignored.
Financing need remains
Due to Basel III, many other financial pressures, and the very culture, banks are having to withdraw/avoid many of the niches in receivables financing. Nevertheless, the need to provide flexible asset backed financing which:
- is bank independent
- offers access to many other investors
- focusing on the quality of trade receivables, rather than just on the customer’s credit quality
- provides innovative approaches combined with high quality service support
remains and is vital for the survival and growth of many companies.
This is where the independents and their platforms come in. Indeed, they are critical for global business growth.
Demica - technology based alternative finance services
Demica have been providing independent, technology based alternative finance services and solutions since 19XX. They were a pioneer of multi-jurisdictional receivables securitization transactions and have a wealth of experience in implementing both domestic and cross-border Supply Chain Finance programmes.
Since Demica were taken over by three private equity funds in 2014, they have:
- invested in a new technology platform to provide cutting edge trade receivables finance and supply chain finance services to all transaction stakeholders
- expanded beyond transaction management services by recruiting sales and structuring teams with crossborder capabilities and have built close financing partnerships with a group of global banks and large institutional investors in order to provide an end-to-end, multi-jurisdictional receivable finance solution to complement the mainstream banks offering.
Demica now offer two main services: Receivables Finance and Supply Chain Finance to non-investment grade corporates typically with revenue of €750mm to €30bn requiring facilities of €50mm to €750mm. Its clients usually operate in a number of international locations: today Demica has clients with OpCos in 30 countries and is facilitating the funding of receivables from 123 countries.
The company’s core platform interfaces with client’s ERP and accounting systems to enable it to track the performance of millions of individual receivables, assess which ones meet the transaction eligibility criteria and then optimize the selection process to maximize the advance rate for client. With fully automated daily reporting, interfaces with the major credit insurers to enable insurance of individual obligors, excess concentrations or specific jurisdictions, and integrated back-up servicing, Demica offers investors exceptional risk mitigation tools that have led to zero loss for funders since inception in 2002 which in turn has benefited its corporate clients with higher advance rates and lower cost of funds. Alternative investors usually have shorter decision making processes than banks (typically a few weeks) and have a more pragmatic approach towards risk assessment.
Demica also takes a unique approach to implementing its programs – unlike banks, it helps project manage the implementation of each of its transactions taking a significant burden off its clients. The platform takes data from a wide range of different accounting systems, enabling clients with multiple systems to achieve fully automated reporting on complex multi-jurisdictional programs without additional headcount.
Future of asset-based financing business
Whereas product innovations in the receivables based financing space had been relatively limited during many years, the arrival of new players has fueled a wind of innovation, automation, alternative financing that is here to stay. François Terrade, Head of Structuring (Europe), Managing Director, believes that, “The role of Demica is to identify and structure investment opportunities and advanced data and risk management tools for investors willing to put money into secured receivable based financing whilst providing to corporates additional and more flexible sources of financing where banks are not best placed.”
CTMfile take: Supply chain finance services business is becoming a battle of the platforms and financing flexibility to provide the investors with the data to be able to understand the risk profile of the debt they are investing in. The independent non-bank companies, such as Demica with their unique platform, have an important part to play here.
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