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FCIreverse: Supporting Working Capital During The Covid-19 Crisis

This article is an extract from In-Sight May 2020

Supply chains are experiencing major challenges during the Covid-19 pandemic, with both buyers and suppliers experiencing considerable pressure on their working capital. As FCI members work to support their clients through this crisis, there’s a clear focus on increasing the resilience of supply chains and protecting strategic supply. So how can FCIreverse help members achieve this?

Supply chains in flux

In recent weeks, both suppliers and buyers have experienced major challenges – although the nature of these challenges varies considerably from business to business.

Some suppliers have seen demand for their goods and services plummet, with the most agile acting quickly to redefine their markets – such as restaurant suppliers which have begun selling to supermarkets. Others have seen a steep increase in demand and are seeking credit to help them speed up the conversion of inventory into sales.

Buyers, meanwhile, are reassessing practices like offshoring and just-in-time supply and are looking to work more closely with local suppliers. And with many companies lacking reserves of cash to draw upon at this challenging time, widening credit spreads are leading to further challenges where funding is concerned.

It’s worth noting that government-backed lending is enabling many businesses globally to access the working capital they need to continue operating. Looking ahead, further challenges may arise as different countries begin to release lockdown measures, with many companies expected to seek refinancing at this point.

Supporting buyers and suppliers

Against this backdrop, buyers are working to reduce the risk of disruption within their supply chains, with buyers and suppliers alike looking for ways to maximise their working capital.

Reverse factoring has much to offer both buyers and suppliers at this time. Even in normal, stable markets, buyers seek to generate working capital by extending their supplier payments terms. This benefits the buyer’s cashflows and working capital position – but it effectively transfers cashflow pressures to suppliers and can increase supplier pricing to buyers.

Current circumstances have increased pressures on the working capital of buyers and suppliers alike. Reverse factoring relieves the pressures on working capital positions of both buyers and suppliers without the need for price increases.

Enter FCIreverse powered by Demica

While reverse factoring has much to recommend it in the current market, not all reverse factoring solutions are alike.

FCIreverse, which is much simpler to implement than other reverse factoring solutions, enables FCI members to provide much-needed liquidity for their clients, while also helping them manage and monitor risks. With governments injecting money into banks to support supply chains affected by Covid-19, FCIreverse is also an effective way of deploying those funds to benefit businesses.

FCIreverse is available both as a three-corner model (including buyer, supplier and bank), which allows members to set up local programmes quickly and easily, and as a four-corner model which includes banks in both the buyer’s and suppliers’ markets. FCI members can use the four-corner model to support their clients’ supply chains wherever their suppliers are located, thanks to the FCI network, the inter-factor agreement and the General Rules for FCIreverse legal framework.

FCIreverse offers several attractive benefits compared to other reverse factoring solutions:

• Fast and simple implementation. With FCIreverse, members can set up reverse factoring programmes quickly and easily. The standard integration model means there’s no need for a lengthy implementation.

• No minimum volume requirements. The solution has no minimum volume requirements, making it suitable for both large and small programmes. FCIreverse can therefore be used to complement an existing programme or set up a new programme from scratch.

• Easier to onboard overseas suppliers. Supplier onboarding in overseas jurisdictions can be challenging. But with FCIreverse, FCI members in different countries can onboard suppliers for each other, thereby overcoming common challenges such as local language and legal requirements and KYC procedures.

• Minimal costs. What’s more, FCIreverse is typically cheaper to implement than other reverse factoring solutions. For example, it avoids the need for substantial investment in IT tools.

• Co-origination support. A team focused on helping the FCI members in identifying trade flows, helping to optimize the country flows, the sector or the client flows to assist in the onboarding process of the buyers or of critical suppliers. In summary, as buyers and suppliers focus on optimising their liquidity and working capital during this crisis, FCIreverse offers members an attractive way of supporting their clients’ goals.

To find out more, call +34 0615 908 840 or write blanco@fci.nl to Mónica Blanco to find out more and how to assist you in implementing FCIreverse.