Lien Supply Chains

Lean on me when you’re not strong and I’ll be your friend, I’ll help you carry on, for it won’t be long till I’m gonna need somebody to lean on- Bill Withers

Many people look at Supply Chain Finance and wonder why a supplier wouldn’t want to participate to gain cash flow visibility and on-demand early payment capability. In most SCF programs there is no sign up cost for the supplier and they only pay fees if they choose to receive early payment. Further, the only technology requirement is an internet connection and a web browser. That said, there are a few sensible reasons why suppliers choose not to participate in SCF programs and one of the biggest is restrictions placed on suppliers by their existing lenders. Many suppliers who could gain the most from Supply Chain Finance have some sort of asset based financing in place, from Asset Based Loans to factoring. This means the supplier’s existing lenders will have placed liens on their receivables making them ineligible for sale. Since nearly all bank funded SCF programs facilitate early payment through the sale of receivables, suppliers utilizing asset based financing may not be able to participate in SCF unless either a) they get the liens on their receivables released or b) the SCF program facilitates early payment through a mechanism other than the sale of receivables. The lien release process can be painful at best and prohibitive at worst, it requires the supplier’s existing lender to release the liens and adds a lot of time to the supplier enablement process. It is important to note however that this is a US issue where the Uniform Commercial Code (UCC) governs the sale of receivables. Liens are not a meaningful impediment to SCF adoption outside of theUS. Even though SCF reduces supplier’s costs and financial risk and improves their financial health, some lenders will not release liens in order to protect their existing business. While liens can and do get released by supplier’s existing lenders, it adds a lot of time to the supplier enablement process and some suppliers won’t be able to get them released if the only early payment mechanism available is the sale of receivables. For some suppliers, the heart is willing, but the existing lender is weak.