Unlocking the cash

In April this year, Lloyds TSB Commercial Finance and JPMorgan announced the launch of a supplier finance service to UK investment-grade corporate and global businesses. FST caught up with Ted Ettershank, Managing Director of Lloyds TSB Commercial Finance, to find out more about the service and its likely success in Europe.

FST. Can you tell me more about what the new service involves and your partnership with JP Morgan?
TE. Supplier Finance is designed to enable UK major corporates (buyers) to benefit from extended supplier credit terms or early settlement discounts, while offering the suppliers immediate cash for approved invoices. i.e. working capital support and at a competitive finance rate. These ‘buyers’ must be investment grade businesses, but they do not need to have an agency rating, just a financial strength that will allow Lloyds TSB to view them as equivalent to a BBB- or better rated business.

Lloyds TSB Commercial Finance had to ensure that we delivered Supplier Finance via a robust IT platform and easy to navigate web-based front-end. This is why we chose to partner with JP Morgan Chase, who provide the tried and tested systems infrastructure, as well as the practical experience of delivering this solution in the US, Asia and Europe.

FST. So. How is this going to benefit UK companies?
TE. Buyers can realise a massive cash boost and/or supplier early settlement discount at no cost to themselves. Furthermore, we have obtained confirmation from leading accountants that the structure of the Lloyds TSB solution does not increase the buyer’s debt on the balance sheet by reference to both FRS 5 and IAS 1 accounting standards.

Unlocking the cash in the supply chain enables buyers to reduce their working capital, pay-down debt, plug a pension fund deficit, finance growth and, whichever way one looks at it, supplier credit supported by Supplier Finance makes the key financial ratios much stronger.

But Supplier Finance is a two-way-street – it not only makes the buyer more competitive, but also delivers key benefits to their suppliers. For them, Supplier Finance gives instant online access to 100 percent cash payment for their invoices immediately the buyer has approved them for payment. Suppliers can choose to turn invoices into cash at any time and to select only the invoices they want funded. This thereby matches exactly their working capital requirement day by day, and always with the certainty of receiving funds from a bank when they need it, as opposed to simply hoping the customer will pay on time.

FST. How successful do you anticipate the new service will be?
TE. Judging by the high level of interest expressed by over 50 of the UK’s leading corporate groups in only the six weeks since we launched Supplier Finance – it should be very successful indeed. When we researched the market, we spotted that in Spain, Supplier Finance has grown rapidly over the last few years in that market.

FST. What opportunity might there be to extend this across the region then?
TE. Commercial Finance is in the process of opening an office in Spain for our traditional asset-based lending and receivable financing solutions, and we will definitely have a Supplier Finance offering. We’ve already had customer demand for it. We also see opportunities in our German and French operations to offer Supplier Finance – indeed, we understand that the French supermarket group Carrefour has used it for some years now.

FST. How does it fit with Lloyds TSB’s overall business strategy?
TE. Supplier Finance is an excellent fit alongside our existing asset-based lending facilities, and further extends our relevance to all types of business – from start-up to global multinational, covering all grades of financial strength, from investment to sub investment. It also has relevance internationally as mentioned above – further widening our market footprint.

FST. In what other ways or through what initiatives does Lloyds TSB Commercial Finance support companies through its asset-based lending?
TE. Our mainstream asset-based lending facilities are normally linked to a client’s receivables for all types of working capital solutions – whether companies just need to improve their access to cash from their debtor book, or to raise cash from their inventory, their plant and machinery or property.

Where necessary, we can also provide cashflow loans and, coupled to these services, we can deliver HP and leasing facilities to spread the cost of new asset purchases. This is all through a one-stop-shop approach for maximum convenience for our clients. Increasingly, companies involved MBO/MBI/BIMBO transactions and acquisitions also recognise the benefits of speed and simplicity offered by asset-based lending – for example, last year we were actively involved in one in 10 of all UK MBOs.

FST. Can you give a brief rundown of your services – are these targeted at small, medium or large organisations?
TE. Our facilities are currently used by over 14,000 companies of all sizes from start up to global multinational. They include factoring and invoice discounting – funding the client’s invoices on a disclosed or confidential basis, and asset-based lending (where we add funding against stock, P&M, property, and cashflow loans, to the standard ID facility). We also offer payroll services/funding – available for temp recruitment companies through our subsidiary Cash Friday in the UK. It’s worth noting that we estimate that we currently deal with around eight percent of all temperary recruitment agencies in the UK and are looking to increase this penetration significantly over the next 12 months. Other services include syndicated asset-based lending – used mainly by large and multinational corporates both in the UK and internationally – and HP and leasing – used by our clients and those of our parent bank when purchasing new assets for their business in the UK.

FST. Do you have any further plans in the pipeline, either with regards to the Supplier Finance service or other initiatives?
TE. International expansion features strongly in our plans this year – with new operations already started in Ireland and France, joining our established German operation and our New York operation, and a Spanish business scheduled to open late this year.

In the UK, we have real confidence in our staff and our service standards – and so have just launched our unique New Business Charter for all factoring and invoice discounting clients. We offer them no termination fees and a refund of their first six months’ service fees if they are dissatisfied with our service delivery and wish to leave us. No competitor – either bank-owned or independent – currently matches this offer as far as we are aware.