Igor Zax, managing director of Tenzor Ltd, published a new article, Supply Chain Finance- is there mid-market opportunity for factors? in BCR Factorscan, major factoring publication. The article focuses on the application of Supply Chain Finance for mid market sector, roots to market (both buyer centric and seller driven) and the role that factoring companies can play in this segment. Share this: LinkedIn11 Twitter Email Google Facebook Like this: Edit No Comments » Corporate Credit Policy-A Strategic View by Igor Zax Posted by Igor Zax | Under Corporate Restructuring, Corporate Turnaround, News, Published Articles, Working Capital Wednesday Feb 2, 2011 Igor Zax, managing director of Tenzor Ltd, published a new article, Corporate Credit Policy-A Strategic View in GT News (major treasury publication by AFP). The article discussed the nature of trade receivables risks, its difference from other type of credit risk, its relationship to corporate strategy and approaches to design of optimal credit policy. Reprinted with permission. Share this: LinkedIn10 Twitter Email Google Facebook Like this: Edit No Comments » Trade Credit Insurance: Best Practice and Lessons from the Crisis Posted by Igor Zax | Under Corporate Restructuring, Corporate Turnaround, News, Published Articles, Working Capital Tuesday Aug 17, 2010 Trade Credit Insurance- Best Practice and Lessons from the Crisis This new article by Igor Zax covers reasons for use of credit insurance, it’s role in transferring risk, outsourcing credit process and building financing solutions, advantages and pitfalls of using credit insurance, and the effects of the financial crisis for corporate use of credit insurance. Published in GT News – publication of AFP (Association of Financial Professionals). Reprinted with permission.

1. Supply Chain Finance- is there mid-market opportunity for
factors?
Global Analy sis, Tuesday , 22 February 2011
Igor Zax, Managing Director of Tenzor Ltd., looks at the mid-market sector’s (Euro 50mn-1
bn turnover) important role in the development of supply chain finance, and asks whether
this could be the factors’ key to the SCF market.
In recent y ears, supply chain f inance has become a v ery popular concept, with most of
the major banks proclaiming it as one of the big priorities in their transaction banking
activ ities. In its “traditional” interpretation supply chain f inance is based on a simple and
robust idea; if the f inancier, instead of rely ing on the seller to giv e its ledger inf ormation
on inv oices that may be opened to disputes, dilutions or f raud, relied on the buy er’s
inf ormation on inv oices that are not disputed and are approv ed to pay , risky and
complicated f actoring business can be substituted with “simple” f inancing based purely
on the buy er’s credit risk.
In some regions, this idea has been known f or a long time under dif f erent names;
conf irming, rev erse f actoring, etc. What has emerged more recently is the attempt to
mov e this concept to a mainstream banking product, backed by sophisticated IT
sy stems (allowing the capture of data f rom a customer’s ERP), linked with other cash
and trade dev elopments (such as e-inv oicing) and expending to the markets where
rev erse f actoring was not widely used. Yet despite substantial ef f ort put into promoting
SCF products and the apparent strong need that has been driv en by the limited
av ailability of other f orms of credit, its current penetration is still small.
In large banks’ adaptation of SCF, two major trends are present: a f ocus on large
inv estment grade buy ers – normally with a large number of smaller sellers – and a buy er-
centric, as opposed to supplier-centric, approach.
The argument f or the abov e approaches is that large credit worthy buy ers prov ide the
largest arbitrage in the cost of f unding, hav e suf f icient size to justif y high set up costs,
such as IT integration, and hav e suf f icient power ov er their supply chain to ‘f orce’ the
adoption by normally pushing the credit terms and then of f ering a solution. On top of
this, parts of the banks where SCF is hosted do not normally hav e access to taking
credit exposures on mid-size companies – but can access the lines within their
relationship bank f or these large buy ers.
The downside to this approach is that it is f unding the supplier against perceiv ed
non-existent risk – if y ou are a mid-size company , y ou are unlikely to worry about y our
AA rated major customer going under, as their risk of def ault is much lower than y our
own. The approach can cause accounting complications f or buy ers in some structures
(particularly tri-party agreements where there may be a risk of reclassif ication of
liability ), create large concentrations f or f inance prov iders and is normally only adopted
by a small minority of the suppliers – supplier on boarding is normally quoted as the
biggest barrier.
In a buy er centric approach, the buy er’s procurement team ef f ectiv ely play s the role of
a sales f orce f or the f inance prov ider – by the nature of their work these people are not
necessarily the best sales team, particularly f or selling such a complicated product that
f rom the supplier point of v iew requires multiple decision making, including treasury ,
f inance directors, sales, legal and tax. Importantly , the decision, its accounting
implications – such as the ef f ect on v arious loan cov enants that may restrict the
transf er of receiv ables) and its cost is mainly the sellers issue. To achiev e desirable
accounting treatment, the buy er role is normally reduced to just inf ormation prov ision.
The alternativ e approach is seller centric (such as distributor f inance) where the seller is
driv ing the buy er’s adaptation – f or instance, with the buy er prov iding conf irmation
through a seller supported sy stem – in exchange f or longer pay ment terms, at a price.
The dif f iculty of this approach is that while operational and f raud risks are mitigated
through buy er prov ided inf ormation, it requires the f inancier to make a large number of
credit decisions that most of the banks are not set up to do within their transaction
serv ices.
For f actoring companies and commercial f inance operations within the banks the situation
is opposite; they are well set up f or making and pricing a large number of credit decisions
and pref er div ersif ied risk to a concentrated one and, as we learned during the crisis, the
perf ormance of well div ersif ied credit portf olios is normally much more predictable than
large single risks). It also makes marketing of the solution much easier as all
documentation, pricing etc. need to be concluded with a single party – the supplier – and
the only input required f rom the buy er is inf ormation on inv oice approv als – normally
centralised in a single department – although it still requires some IT inv olv ement (no
dif f erent f rom the buy er centric model).
It also allows the supplier, who pay s f or the program, to easily recov er the cost by
adjusting the price, at longer terms, by more than cost of f inancing – in the case of
buy er conf irmed inv oices, this can hav e an adv ance rate of up to 100 per cent as
operational risks are eliminated, making it attractiv e ev en f or strong suppliers who don’t