When is Finetrading suitable as alternative financing
Finetrading is primarily a fast and flexible type of purchase financing that extends a company’s payment term up to 120 days. In addition to the classic pre-financing of merchandise purchases, finetrading can also be used to offset seasonal peaks, among other things. Many companies also use finetrading to obtain better purchasing terms from suppliers — i.e. lower unit prices at better conditions — and to strengthen overall ties with key suppliers. Now, shortly before the end of the year, companies are also using the bank supplement to comply with the covenants agreed with their principal bank as of December 31 and thus enter the new negotiation talks for 2014 in a stronger position.
The reasons for using finetrading are therefore as varied and individual as the finetrading contract tailored to the customer’s needs.
In the wake of Basel III, bank-supported financing will become increasingly difficult for SMEs in 2014. Presumably, the terms for loans will become shorter, and the rating, which is the central element in assessing a borrower’s creditworthiness, will become increasingly important. In order not to be exclusively dependent on the house bank and to improve one’s own negotiating position with the house bank, it makes sense to additionally use complementary solutions of bank-independent institutes. Finetrading, for example, is a supplier liability, i.e. companies not only relieve their bank line but also improve their debt ratio and thus a key ratio for the rating. This is very important, especially for medium-sized companies; after all, an improved rating can also reduce the cost of loan financing in the future.
In a nutshell: the trend is positive in any case. Earlier this month, Roland Berger, together with Creditreform, presented the Working Capital Management 2013 study. Among other things, this shows that 89 percent of SMEs consider internal financing to be the most important measure for improving capitalization. The liquidity potential of internal financing is estimated at around EUR 87 billion, so I am sure that offers for financing alternatives such as factoring, leasing or even finetrading tailored to the target group of SMEs will become increasingly important.