The Impact of Supply Chain Finance on Credit Capacity

Injustice, in the end, produces independence.- Voltaire

As Supply Chain Finance programs gain in popularity and grow in size I hear a lot of clients expressing concerns about the impact that an SCF program may have on their credit capacity with their relationship banks. This is particularly true as clients look ahead to scenarios where their objectives or uses of cash may change over time. There is no doubt that banks reduce their credit capacity with a buyer by the amount of funding the bank provides to that buyer’s SCF program. This is especially critical for buyers who may be considering an acquisition, share buyback, etc. at some point in the future and may not want to reduce the credit capacity they have with their relationship banks. It’s an even bigger issue for non-investment grade buyers. The good news is that Supply Chain Finance programs can easily be structured so they do not impact the buyer’s credit capacity with relationship banks or individual financial institutions. The best way to do this is simply to have the bank independent SCF provider allocate liquidity requirements either to banks outside the buyer‰Ûªs relationship bank group or to non-bank financial institutions. This expands the buyer’s total allocated credit and does not impact their credit capacity within their bank group.