Securitisation

An international equipment manufacturer, supplier and services group ran regional securitisation programmes designed to ensure the timely release of cash from its receivables. It operates in approximately 40 countries with in excess of 40,000 employees

Such facilities require monthly data collection and analysis to eliminate receivables not acceptable to the underlying lenders.  Receivables considered at risk are excluded via complex criteria designed to ensure the lenders accept only readily collectable or "eligible" receivables.  This data is collected from the relevant unit's accounting system.  This is reformatted automatically into the data structure required for automated analysis by the lenders' computer systems.  No actual collection takes place by lenders unless the main company is unable to continue in business.  The ultimate customer is usually unaware of the arrangements and is not affected by the procedures.  

It is important that the contracts under which the receivables are being recorded as eligible permit this type of arrangement.  The legal environment of the relevant country of the supplier must allow for securitisation.  Governing law of the supply contracts. Also important is the concentration of customers, their credit standing, payment record and any additional credit enhancement such as letters of credit.

In Europe the programme covered three countries.  But with the changing economic climate in year 2000, and the years following, the programme was at risk of having to be reduced in line with falling orders and sales volumes.  If the programme had to be reduced this would put pressure on other borrowing limits as cash would need to be drawn down to partially repay the facilities.

So after a review of the sales pattern two additional European countries were added to enable the programme to be maintained.  This meant a legal analysis and financial audit coupled with straightforward changes to the units' accounting systems to enable them to automatically generate the data reports required.  The new systems were set up locally in the individual country units.  The required data flows were established within two months from initial meetings to data testing.  This allowed sufficient time for the new units to be incorporated smoothly.

Overall the final programme covered 22 units across 5 European countries.

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