From the June Special Report issue of Treasury & Risk magazine

Distributor Finance: A New Strategy to Support Top-Line Growth and Sales into Emerging Markets

By Jon Richman, Head of Trade and Financial Supply Chain Americas, Global Transaction Banking, Deutsche Bank, and Joao Luiz A. Galvao, Head of Financial Supply Chain Americas, Global Transaction Banking, Deutsche Bank

Distributor finance, also known as channel finance, is built on the concept of a large corporate supporting an established network of key, geographically-strategic distributors to reach and expand their operations and sales into new markets. It is a revolving line of credit often available for a short-term basis and with the specific purpose to finance inventory purchases from the anchor supplier.

The bank you choose to partner with for distributor finance should have a team of product experts trained to structure these highly customized cross-border multi-currency finance deals. An experienced structuring team will look for distributors that have a vested interest in succeeding in selling the products it purchases from the MNC.

Usually the distributor will purchase a sizable portion of its products from its anchor MNC supplier. It will also have a few years of commercial relationship with the MNC and a good repayment history. The line of credit will be sized and monitored accordingly and other credit review criteria will apply such as financial statements review, access of management, etc. In the end, the combination of a satisfactory structuring, commercial history, business dependency and some minimum creditworthiness makes the default rating arising from these adequately-sized, short-term revolving facilities very low. Therefore, this type of financing can provide more flexibility on better terms than straight working capital.

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