With low rates in the bond market and a stock market at its highest, investors need to find alternative investment solutions. Invoice trading is one of them, providing a new, high return, secured, short-term asset class. This was the subject analyzed by Fermat Capital Management in the study conducted by Adam Dener and published on November 2017. It refers to the U.S. market but we believe it perfectly applies also to the European one.
Monetary policy and regulation post the Global Financial Crisis (GFC) have created a challenging investment environment [..]. Low interest rates have resulted in an increase in fixed rate, long-term product issuance and a decrease in floating rate, short-term product issuance. This has left investors exposed to reduced asset prices and potential mark-to-market losses, as well as increased default risk as interest rates rise.
With limited short-term product available, investors have been forced to manage short-term money primarily through investments in U.S. Treasury securities and Money Market Funds (MMFs). However, due to changes in the Federal Reserve’s monetary policy and commercial bank re-regulation, investors are facing increased competition with central and commercial banks for access to U.S. Treasury securities, as well as reduced options for investments in MMFs […]
These changes have created a gap in investment portfolios, leaving unmet demand for floating rate, short-term products that are non-financial or government exposed. Investors therefore seek diversification away from fixed-rate, long-term products, U.S. Treasury securities and MMFs through alternative forms of investment.
One area of consideration for investors is trade finance [in all its variation, among those invoice trading] […]. This product offers investors the opportunity to invest in high quality, short term, non-financial credit risk in a floating rate product, which makes it particularly attractive for institutional investors in today’s challenging investment environment.
Trade finance broadly describes activities that involve financing and risk mitigation related to import/export, one flavor of which is account receivable and payable financing, commonly via purchases of receivables, loans against receivables or insurance against receivables. A specific form of trade finance, commonly referred to as confirmed receivable purchase (CRP) [or invoice trading], provides an attractive form of alternative credit investment for investors to consider.
In a CRP [invoice trading], an account receivable is typically created as the result of a commercial trade transaction between a corporate obligor and supplier.
Additionally, CRPs [invoice trading] tend to offer an attractive risk-adjusted yield. One way to determine this relative value is to compare CRPs [invoice trading] with corporate bonds for a single obligor.
There are a few primary factors driving this attractive relative value.
Source: Fermat Capital Management LLC
All invoices traded are subject to confirmation by the debtor and CashMe manages all the steps of the process ranging from the seller due diligence, to the debtor risk assessment, to the monetary transaction (thanks to a payment institution partner), to the credit collection. Generally the seller receives an advance payment equal to the 90% of the face value, and then the settlement of 10% minus the discount is paid upon maturity.
Since inception CashMe experienced a:
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