As financial technology evolves it continues to throw up new trade finance models and platforms. The latest example is Supply@Me, an inventory monetisation provider that has just signed up the first funder for a service designed to enable companies with warehoused inventory to free up the value of this stock.
As we have previously reported, many corporates have raised inventory levels as the conflict in Ukraine and lockdowns in China added to the supply chain issues created following the outbreak of Covid.
Increasing stock levels may act as a buffer against future supply chain disruption, but holding more stock comes at a cost. Supply@Me hopes to tap into this through an off-balance sheet solution, which allows firms to recognise inventory monetisation funds as a legal true sale.
The company has secured a commitment of US$10m from the VeChain Foundation for inventory monetisation transactions across two phases, explains Nicola Bonini, Group Head of Origination.
“In phase one we aim to execute a transaction by the end of July for inventory worth up to US$1.5m for a client company we have already selected from our Italian portfolio,” says Bonini. “But the alliance with VeChain is just one route for prospective clients and funders to access the platform as we continue to progress our own traditional funding routes.”
Supply@Me says it is building a sustainable pipeline of warehoused goods in various sectors, with differing inventory monetisation day one purchase amounts and in various locations across Europe and MENA.
Monetisation transactions can be facilitated for a wide range of inventory types – from vehicle parts to clothing and footwear – providing the goods are stored in a warehouse and are not categorised as ‘slow-moving’ or ‘non-moving’.
“Inventory can be either raw materials or finished goods or a mix of both,” adds Bonini. “We generally do not monetise stock which is perishable, unless it has a very long shelf life (canned goods or concentrates, for example) and we do not monetise goods under any licensing agreements.”
The transaction level will depend on the appetite of the funder of the transaction and the needs of the company with goods to be monetised. Supply@Me encourages businesses to consider inventory monetisation if they have been trading for more than three years and have an annual turnover of at least £10m and warehoused inventory worth more than £5m.
The overall cost to use the platform comprises fixed and variable costs including:
An upfront fee for due diligence.
A charge for the arrangement of the commercial agreements.
An annual service agreement.
A fixed margin when a company buys its goods back, which will only be payable when sales are made.
The offering involves a three-year contract where for the first two years, once the client has sold the stock to its end customers, the platform can buy new inventory through a rolling mechanism. Companies do not have any conditional or unconditional obligations to buy back the stock, which is under the control of the platform (which can also sell the related goods to third parties). In year three, instead of refilling with warehoused stock, the facility winds down as the inventory is sold on. This means that companies do not carry the risk for any inventory not sold during the contract period. Stock is refreshed at least twice a year and Supply@Me does not purchase slow-moving stock which takes more than 12 months to be sold, or non-moving and/or obsolete stock.
Bonini says the company is in conversation with a selection of prospective funders, including commercial banks, debt and hedge funds, and asset-based lenders.