In times of hardship, supply chain finance is an excellent tool to provide suppliers a stable source of liquidity to respond to disruption. This reliability of payment and flexibility on timing can accelerate working capital on both sides of the supply chain. But what happens if a supplier has liens in place against their receivables? Can they still get early payment?
Historically, the answer has been yes – but not without a considerable amount of work.
Participation in a supply chain finance program requires suppliers that previously pledged their receivables to a financial institution to obtain a lien release. While procuring a lien release is possible, it significantly delays the onboarding process and, in most circumstances, is impractical.
PrimeRevenue has developed a proprietary solution to address these types of suppliers. Our patented Electronic Time Drafts (ETD) solution eliminates the need for lien searches and any lien release requirement for suppliers to participate in supply chain finance, speeding up the supplier onboarding process and creating a faster path to cash.
This proprietary solution is one of many ways we help our customers and their suppliers maximize cash flow from their supply chain finance programs. Today, more than 100 buyer programs are leveraging ETDs to expand their programs and extend the advantages of supply chain finance to a greater number of suppliers.
How Electronic Time Drafts Work
In supply chain finance, a time draft is a payment instrument whereby a buyer accepts goods or services and agrees to pay a supplier on an invoice at a specified future date. The bank purchases the draft from a supplier at a discount based on how far in advance of the maturity date it is purchased, as well as the buyer’s credit rating. In return, the bank advances funds equal to the purchase price to the supplier. The time draft assures the bank that it will receive payment in full from the buyer on the maturity date. If the buyer fails to pay, the bank can draft the payment from the buyer’s account.
Additionally, patented and offered exclusively by PrimeRevenue, our Electronic Time Drafts solution eliminates the need, burden and cost associated with paper time drafts.
Without ETDs, suppliers, buyers and financial institutions had to either print, endorse and ship time drafts manually, or complete the administrative processes of perfecting the purchase of accounts receivable. PrimeRevenue’s secure platform efficiently, and electronically, automates and manages this entire process.
When the supplier decides to receive early payment on a given invoice, the PrimeRevenue system electronically creates and signs an ETD payable to the supplier with the maturity date reflecting the due date on the invoice being paid. Then, the ETD is electronically endorsed by the supplier to the bank in return for early, discounted payment. On the due date of the original invoice paid with the ETD, the bank drafts the full value of the ETD from the buyer’s bank account.
The Benefits of Electronic Time Drafts
For suppliers, the primary benefit of ETDs is broad eligibility to participate in a supply chain finance program, increasing their liquidity options and materially improving cash flow. Most often, suppliers that utilize ETDs in a supply chain finance transaction gain the most from program participation – particularly those that already have some form of asset-based financing in place (e.g. loans, factoring, etc.). This is because many suppliers may otherwise not be able to obtain lien releases to sell their receivables.
The benefits of ETDs are equally powerful for buyers. By removing lien search/releases, ETDs increase the range of suppliers eligible for supply chain finance to mitigate any negative impact of extending payment terms. This results in higher success rates for terms extensions, helping buyers reap maximum cash flow gain. It also expedites the supplier onboarding process so buyers can realize cash flow gains much faster.
Combined, the advantages of ETDs for both buyers and suppliers accomplish a larger, objective: improving supply chain health and resiliency. Giving companies a debt-free way to improve cash flow is critically important – especially during periods of extended disruption when payment cycles are slowed.
If you’re interested in expanding your current supply chain finance program or exploring your options with ETDs, complete this short form and a Working Capital Specialist will contact you.