Supply chain finance platform PrimeRevenue has partnered with credit insurer AIG to provide working capital funds to mid-market, non-investment grade companies in the UK.
The product allows suppliers to get paid early at a small discount, and enables buyers to lengthen and standardise their payment terms.
According to the firms, the credit risk insurance partnership will make it possible to finance smaller businesses than the investment grade companies that have so far been able to use supply chain finance solutions.
“We’ve been targeting what we believe is a major gap in the market to fund non-investment grade companies. They’re still large companies. We’re initially launching this in the UK, targeting mid-sized corporates. Our target is annual sales exceeding £100mn,” Richard Tynan, managing director of PrimeRevenue, tells GTR.
He adds that the solution will then be rolled out to northern and western Europe, before going on to originate business in the US in the coming months.
The financing will be organised by PrimeRevenue Capital Management, which will open the transactions to banks, as well as insurance companies, pension funds, hedge funds and capital market investors.
“Because we’re moving to non-investment grade companies, the process is to work alongside them and to use trade insurance to help de-risk the transaction. It’s a very rigorous process that’s involved in onboarding due diligence and contractual engagements with all parties in the platform – there’s an awful lot that goes on in the background,” Tynan continues.
A YouGov poll commissioned by the duo this month showed that 17% of the revenue of UK businesses that supply large organisations is tied up in invoices with non-standard payment terms, suggesting a £29bn gap in availability of funds.
Additionally, 77% of companies have been asked to accept longer payment terms, with 28% saying the issue has increased in the past year, and 20% adding that they lost business after denying customers longer payment terms.
Respondents indicated that extended payments affect cashflow (55%), require additional administration (33%) and strain client relationships (29%).