Hommocks | Trade Finance | Facilities | Payable Finance

Payable Finance

Seller

Product - Day 1

Buyer

 

Upon receipt of Buyer's notification, Hommocks pays Seller on Day 1.

Payment on Day 25 instead of the traditional Day 10.

Hommocks

Why not pay at a later date?  

Let's say the Buyer is regularly paying the supplier on Day 10 from the delivery date.  If the Buyer can pay on, say, Day 25, the Buyer benefits because cash is remaining in his pocket for an extra 15 day period.  Delaying payment is good for the Buyer.  

Hommocks achieves this by paying the Seller.  Hommocks is advancing the funds to the Seller on Day 1 and receives payment on Day 25 from the Buyer.  Hommocks assumes Buyer bankruptcy risk.  If the Buyer goes bankrupt during the 25 day period, it is Hommocks' problem, not the Seller's problem.  

The Seller benefits by receiving funds from Hommocks on Day 1 of shipment instead of waiting the customary 10 days.  The Seller pays for the interest to Hommocks for the factoring period of 25 days, not the Buyer.  The Buyer pays nothing for this Facility to Hommocks.  The Seller pays.        

Payable Finance goes by other names such as Supply Chain Finance, Reverse Factoring, and Confirmed Receivable Finance.  The concept is the same.

Steps:

  1. The Buyer (ie Hommocks' client) contracts with the Seller and receives product on Day 1.  Past practice has been to make the payment on Day 10 to the Seller.

  2. The Buyer notifies Hommocks of receipt of product from Seller on Day 1.

  3. The Seller receives payment from Hommocks on Day 1 of shipment instead of waiting for payment from the Buyer on Day 10.

  4. The Buyer makes the payment to Hommocks on Day 25, an increase in the payables period by 15 days from Day 10 to Day 25.  

Features:

  • The Buyer achieves an extension of the payable period, in the above example, from the customary 10 days to 25 days.  

  • The Buyer is not raising any debt.  

  • The Buyer's trade payable balance is increased.

  • The Buyer is required to negotiate with the Seller for the longer payment term.  

  • The Seller sells, assigns and transfers the Buyer receivable to Hommocks on non-recourse, true sale basis.  Hommocks assumes the bankruptcy risk of the Buyer.

  • The Seller raises working capital and mitigates counterparty risk.

  • The Seller is required to receive a waiver from the Seller's senior lenders if the Buyer receivable is pledged as collateral under the Seller's senior secured loan.  No double-dipping of the same receivable.

  • The Facility is uncommitted.

  • The maximum tenor is 120 days.

  • The maximum deal amount is $50 million.

  • The fee is the discount margin (ie determined by Buyer's credit strength) plus the cost of funds. 

  • The fee is payable by the Seller to Hommocks on the deal start date deducted from the advanced proceeds.