Converting uncertainty into certainty: How receivables finance empowers businesses

In today’s business environment, companies engaged in international trade face a vast array of challenges. Geopolitical risks shift and multiply each day. Uncertainty over tariffs has dominated recent months and looks set to continue. The rules for cross-border trade in the era of “Trump 2.0” are being rewritten in real time.

The reverberations of this turmoil will be felt for years to come, but what is clear is that many international trading businesses – including many in southeast Asia – are not able or willing to abandon trade with the US market. They must therefore navigate increasing volatility and risk, while at the same time facing the usual pressures to optimize cash flow and manage working capital. 

A good place to start is trade settlement. For a seller, the safest way to transact is of course to get funds in advance. But this is not how most trade is carried out. In fact, the trend in recent decades has been a steady move away from the use of letters of credit (LC) and instead to use open account settlement, where payment comes after delivery and sellers assume the risk of buyers failing to pay. 

For many trading businesses, there can be compelling reasons to use open account settlement. It may be a competitive advantage: buyers will naturally gravitate to those sellers that offer them the most attractive terms, so offering open account can help to strengthen client relationships.

But there are challenges too. By requiring payment only after delivery, sellers assume the risk of buyers failing to pay. That risk escalates in a volatile trading environment.

Companies today may need to rethink their approach to balancing these risks and rewards. Letters of credit and standby letters of credit, which both bring certainty of funds, remain a viable option – and we at Societe Generale are well-versed in facilitating these for clients. But there are also other ways to mitigate the challenges presented by a volatile trade world. 

Receivables finance, for example, enables businesses to obtain fast payment even when trading on open account terms. And by unlocking the value of invoices, it can be a strategic enabler. 

Corporates may often want funds particularly quickly, and to know that they are guaranteed. They may also be keen to deconsolidate their receivables, as well as transfer the multiple risks associated with them. At the same time, they may want to retain the continuing payment relationship with their clients even if they have financed their invoices through a third party.

Receivables finance can enable all this. It is quick and confidential, with a smooth transfer of risks including default, interest rate, foreign exchange and duration.

There are clear financial advantages to receivables finance solutions. They are typically faster than using traditional financing such as loans. Companies can enhance their cash flow and improve their working capital position. Additionally, an off-balance sheet solution enables businesses to maintain healthy financial ratios while at the same time transferring credit risk to their bank.

Receivables finance is particularly appropriate for corporates whose international operations are complex. Solutions like these can also open up strategic opportunities. If companies are able to reduce their days sales outstanding (DSO) – the time it takes them to collect payment from buyers – it means that they are then able to invest in other growth opportunities more quickly. And because they benefit from enhanced liquidity, they can also navigate uncertain market fluctuations with greater confidence.

Partnering for success

Through all this, navigating today’s complex regulatory landscape is critical for our clients – particularly those operating in multiple jurisdictions. Deep understanding of the need to ensure the protection of data as it moves across borders is also of key importance.

At Societe Generale, our global presence and deep industry knowledge underpins our expertise in receivables finance. With operations in 62 countries, we can provide our clients with the geographical coverage and the legal support necessary to thrive in multiple markets – including through our knowledge of local regulation. 

As businesses – and the conditions in which they operate – continue to evolve, the demand for innovative financing solutions will only grow. In this environment, a bank that can act as a one-stop shop to meet all of a client’s needs throughout the trade cycle – and convert uncertainty into certainty – is more important than ever.