Citi Perspectives Fall 2023: Transforming Treasury

Pauline Kontos Head, Working Capital Advisory, Citi Treasury and Trade Solutions Sanjeev Ganjoo Global Head, Trade Receivables Finance and CCB Products, Citi Treasury and Trade Solutions | 13 Rethinking receivables: How receivables finance can support sales the next couple of years with Asia figuring to show substantial growth and having the potential to lead all other regions. Recognizing its importance as a growth engine for local corporates and their working capital needs, many governments have been forthcoming with revised trade credit insurance regulations. One such example is in India when in 2021 the Insurance Regulatory and Development Authority of India (IRDAI) revised its guidelines enabling insurers to offer trade credit insurance, allowing banks and financial institutions (FIs) to secure trade credit insurance to support trade finance. 3 And in the event Basel rules get normalized for both European and U.S.-based banks, insurers stand to see further sustained growth for the remainder of the decade. Support sales and customer resiliency while managing DSO and credit exposure After a tumultuous three years, amid varied financial conditions and lingering armed conflict, customers are increasingly seeking flexible and longer payment terms. As companies’ trade footprints continue to spread to new regions, the demand for new, innovative financing solutions continues to grow. Historically, sellers have leveraged accounts receivable financing to potentially inject liquidity into sales distribution channels while managing DSO. For many corporates, accounts receivable finance programs play a critical role in their liquidity structure as many use these programs in addition to commercial paper to provide their business with liquidity. As corporate needs evolve, structured accounts receivable portfolio financing continues to offer a customized solution that can be an efficient working capital optimization tool to reduce DSO, while allowing longer payment terms for strategic customers. 3 The Times of India, IRDAI Issues Revised Trade Credit Insurance Guidelines, 2021. Figure 2. Account receivables finance flow Day 0–5 Goods/Services & Invoice Sign Accounts Receivable Purchase agreement Customer/Portfolio New! Seller 1 2 Day 5 Notice of Assignment Seller assign receivables; Citi purchases invoice at pre-agreed discount Customer/Portfolio New! Seller 3 4 Discounted Funds 5 Day 90 Settlement may be delivered from; A. Customer B. Seller acting as collection agent Customer/Portfolio New! Seller 6 © 2023 Citigroup Inc. No redistribution without Citigroup’s written permission.