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Levantor is a London-based company that enables large corporate sellers to grow sales by making it easy to offer corporate buyers flexible extended payment term options. Buyers have deferred payment on over US$5bn of invoices via Levantor since mid-2017, with over US$1bn of that in 2021 alone. In this Industry Perspective, David Frye, CEO, and Mike Humphreys, chairman and co-founder, discuss the growing demand for easy to access, flexible, short-term sales finance solutions, and highlight the need for innovation in getting finance to where it is needed.

GTR: What is sales finance, and what are its benefits as a working capital tool compared to supply chain finance?

Frye: Sales finance is a simple, effective sales enablement tool. It helps sellers offer buyers the option to defer payment in order to support the buyer’s working capital. Sellers are paid on time, or early if they wish, while buyers pay later, typically after they have collected on sales from their customers.

It is a different approach to that of supply chain finance; with sales finance, it is the sellers who want to support their buyers and give them flexibility.

From the buyer’s perspective, this is very attractive. They are very strong, well-funded buyers, and sales finance provides a flexible, incremental source of working capital finance to enable them to grow their business, especially during peak volume periods. Without sales finance, when volumes are high, buyers may be forced to forgo early payment discounts from suppliers, accelerate cash collections from customers or pass on otherwise good sales opportunities altogether, none of which are good options. Sales finance bolsters their core funding facilities by offering a very competitive, flexible and simple solution tied to the seller.

GTR: Where does the demand for sales finance come from, and how has that changed in recent months?

Humphreys: The consumer products, health care, industrial, and technology, media and telecom (TMT) sectors are where we see the most demand. It is quite a broad church, but demand for sales finance comes from a seller and buyer who have a strong relationship and who buy and sell between themselves regularly.

Frye: As economic growth restarts, a lot of these supply chains have stalled, and the normal cash conversion cycle has been disrupted. These are situations where the buyer needs working capital and tend to be in those kinds of industries where sales are made through big distributors and retailers at large order sizes. Currently we are seeing new interest in the paper and packaging sector, which is being driven by the increase in e-commerce as a result of the pandemic. As customers come back online, sales finance offers a way to prime the pump so that as sales volumes increase, sellers can offer the payment terms that they need to make sure that they can collect.

Having said that, demand for sales finance isn’t new. In fact, we have seen over the past five to 10 years very consistent demand where large multinationals are recognising that their buyers need flexibility to be able to defer payment. That could be for several reasons, but typically these buyers tend to operate in working capital-intensive sectors. The volumes are large, the working capital investment is large, and credit limits get fully utilised quickly when sales volumes are large.

GTR: What role does a platform like Levantor play in getting working capital to where it’s needed?

Frye: A lot of the traditional solutions in this space are clunky. A single bank can’t do this alone; while it may have a relationship with the multinational seller, it is unlikely to have a relationship with every one of its buyers. This often results in a complicated portfolio set-up that requires extensive documentation and upfront cost and can take up to 18 months to establish.

The innovation we’ve developed is our multi-funder model, which makes it easy for a large number of financial institutions to cherry pick those sales finance flows that they want. We build syndicates for each flow with three to five funders and then continue to fund and keep each funder’s limit utilised as much as possible.

The sales our funding partners finance are between sellers and buyers who are in a close relationship, so it is very much a flow-driven business. Each week, the buyer has the option to defer payment on that week’s batch of invoices. Our role at Levantor is to work with the sellers, buyers and funders to facilitate each weekly transaction. A buyer is free to decide each week whether to defer payment or pay the seller directly.

As ex-bankers, we appreciate that large institutional funders need transparency and simplicity. We don’t require funders to connect their systems to our platform in order to source the assets. Funders get details of each invoice batch and 100% ownership of the asset they purchase, which is a bill of exchange accepted by the buyer. We don’t co-mingle assets in a fund or securitisation. Each asset purchase is settled securely by a highly rated financial institution. Finally, the transactions are fully disclosed, including disclosure of the funder’s involvement to the supplier and buyer.

GTR: What kind of funders do you have on the platform, and have you seen any changes to this mix?

Humphreys: The majority of our funders at the moment are banks, both global and regional. We build a portfolio to fund a particular flow and introduce the opportunities to those funders on a weekly basis. The funder could be a local bank who has a particular relationship with the buyer, or it could be a bank who is interested in the buyer but doesn’t have a strong relationship with them. Recently, we have seen significant interest from credit funds, as well as the underlying asset owners directly, who are seeking ways to enter this space.

GTR: Where do you fit in the ecosystem and what is your approach to collaboration?

Humphreys: Our role is that of an arranger and a facilitator. We work closely with funders as partners, facilitating introductions, the relationship and the documentation. Our proprietary state-of-the-art technology platform serves as the backbone for the implementation of the transaction and the ongoing management of the flows.

Frye: Of the funding syndicate we partner with, 16 of the 17 funders are banks, many of them are large and reputed trade banks, who see us as a complementary origination channel. We are not in supply chain finance, we don’t do any other banking activities, and we make it a point to make sure that the seller and the buyer know which banks are funding the flow. We encourage direct contact because we want funders to have that relationship and the potential cross-sell from the flow.