Funding Through the Use of Trade Receivable Securitization

October 2008 by

A trade receivables securitization is a way for a seller to raise capital by selling certain trade receivable assets into a special purpose vehicle (SPV), on a revolving basis. This permits the SPV to raise capital by issuing notes or taking out a loan, using the trade receivable assets as collateral. The proceeds from the loan or note then flow back to the seller as purchase proceeds for the trade receivable assets. Such a transaction can typically garner a rating higher than seller’s own corporate credit, thereby giving the seller access to greater liquidity at a lower cost of funds. Other advantages may include trade credit insurance and off-balance treatment. Structures, operations, and overhead can vary considerably, and there is room for optimization, customization, and fine-tuning; so, it is important for a seller to choose its securitization partners and arrangements carefully

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