The Greensill case has only directly impacted the companies that used Greensill’s SCF programme. But even here, other banks stepped in and Greensill’s SCF programmes for large corporates have been snapped up. Moreover, these companies will continue to use Taulia as their main technology provider.
However, companies using riskier SCF will see an impact. Rather than regular payables finance, Greensill was doing something different. It couldn’t make enough margin on standard SCF transactions, so it looked to corporate anchors with lower credit ratings and charged a higher margin from providing certainty to their suppliers. SCF is a low margin, big volume, sticky product. When you introduce platforms and asset managers wanting to get paid, or investors wanting yield, it can take on much higher risk.
Greensill got involved in future invoicing. This involves discounting the value of future receivables far into the future to lend money today, effectively allowing corporates to monetise future contracts. Greensill was taking on much greater risk than other lenders in the market by financing future trades that might never happen, based on the prediction that they will. No one is willing to do these kinds of trades for corporates now. There will always be investors in plain vanilla SCF, but returns are low.
Investors looking for yield will now ask more questions about what they are we investing in. Greensill shows that future receivables are a whole difference ball game, and investors will be cautious. Greensill’s structure saw SPVs mixed with various anchors and comprising different programmes, not just receivables but also future receivables. The danger comes when you mix up the anchor corporates and tell investors it is a great mix and put credit insurance on top. For this reason, structures around SPVs will change.
I don’t expect any scarcity in standard SCF, or pricing to increase. Most programmes comprise a large anchor with a technology provider or bank in a one-on-one relationship whereby the funders know what they are investing in. If they don’t know every supplier, they will have a note or structure that they know applies to that one buyer.
Investors and corporates will increasingly look to platforms for transparency around when payments are coming in, and payment trends. Technology providers have an opportunity to provide transparency so that anchor corporates, suppliers and funders all know exactly what is outstanding, and understand on an individual invoice level what they are financing.
SCF has two aspects of due diligence, one around the anchor and one around individual suppliers. Banks’ due diligence around anchors is good, but due diligence around a long tail of suppliers is more difficult. It involves more work and is a trade-off between the cost of onboarding and the benefits to lenders. It’s one of the reasons why KYC is always mentioned as a stumbling block to long tailed suppliers. The important thing is that plain vanilla SCF or paying confirmed invoices early is beneficial. It is a force for good, particularly for SMEs coming out of the pandemic.