Working Capital Solutions. Marc Huijben Laurent de Coster International Business Week October 2012

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1 Working Capital Solutions Marc Huijben Laurent de Coster International Business Week October 2012

2 Our Team at the conference Agenda ING Working Capital Solutions - Introduction WCS Products Supply Chain Finance WCS Products Factoring Q&A

3 2 Current financial climate has put working capital management on the agenda Scarcity of liquidity Stricter regulations Economic downturn Liquidity is scarce and banks are deleveraging Spanish rescue 100 billion Falling down Basel III and regulation of FI s are constraining capital and lending Economic environment pressures profitability Will Greece leave the Euro? Will the Euro survive? Is China slowing down? Working capital management has moved to the top of the agenda Treasurers seeking ways to unlock funds trapped in O2C and P2P Banks focussing more on flow and trade products

4 3 The Dilemma I want to pay late! I want to collect early! Collection Date Payment Date Buyer Supplier

5 Net cash tied up in working capital impacts the short term liquidity and operational efficiency Order Received Cash Received Forecast to Fulfill (Inventory) Order to Cash (Receivables) Timeline Purchase to Pay (Payables) Net Cash Tied up in W/C Order Placed Cash Paid Out 4

6 ING WCS Products help you close the cash gap in working capital Order Received TRPP / Factoring Solutions Cash Received Forecast to Fulfill (Inventory) Order Order to Cash to Cash (Receivables) Timeline Purchase Purchase to Pay to (Payables) (Payables) Net cash gap is narrowed by WCS products Net Cash Tied up in W/C Order Placed Supply Chain Finance Cash Paid Out 5

7 TRPP/Factoring and SCF are looking at different sides of balance sheet TRPP/Factoring Supply Chain Finance Focussed on the assets side of B/S Single Receivables Purchase Agreement with the seller selling a (diversified) pool of trade receivables Repayment based on a (diversified) pool of trade receivables Focussed on the liabilities side of B/S One Buyer, multiple Receivables Purchase Agreements with many suppliers Client ( Seller ) Client ( Buyer ) Assets Liabilities Supplier X A/R Assets Liabilities Supplier Y Debtor 1 Debtor 2 Debtor n A/R A/R A/R Funded A/P Improved terms A/R Supplier Z A/R Funded 6

8 ING Working Capital Solutions Supply Chain Finance

9 8 How does SCF work? PO 1 I need cash Invoice Buyer 2 Invoice Suppliers SCF platform 1. Send purchase order (business as usual) 2. Send goods/services and invoice (business as usual) 3. Approve invoice and present on platform (This is new) 4. Suppliers needs cash and requests early payment 5. ING pays invoice amount minus a small fee 6. Buyer pays ING invoice amount at due date

10 SCF principles Suppliers (which typically have a worse credit rating than the Buyer) have the option to sell their trade receivables on the Buyer to ING: - before maturity, thereby getting access to non-recourse liquidity on-demand - at a discount based on the Buyer s rating, resulting in lower financing cost Method of working capital enhancement The Buyer: - can monetise the value created for its suppliers by negotiating extended trade payable terms or increased discounts - settles the payment at par of the trade receivables with ING at maturity date ING: - receives a margin reflecting the discount Non-recourse funding to key trade suppliers of ING Corporate clients Principles Repayment relies on the relatively stronger credit quality of the Buyer Robust legal, accounting and tax framework Operate through a dedicated web-based platform -> Easy access for all! 9

11 Supplier segmentation mechanism Typically an investment grade Buyer purchases over 70% with non-investment grade suppliers The larger the difference in funding costs between Buyer and Suppliers, the more value can be created 600 Investment grade Buyer Non-investment grade Suppliers 7% 500 Spend 6% 400 Cost of Funds 5% Supplier s average funding cost 300 4% 3% Funding cost differential 200 2% Buyer s funding cost 100 1% 0 AAA AA+ AA A+ A A- BBB+ BBB BB+ BB AA- BBB- BB- B+ B B- 0% 10

12 SCF benefits for buyer and suppliers Buyer s benefits Supplier s benefits Improved terms of trade by - negotiating extended payment terms and increased discounts - standardisation of terms; payment frequency Automation of payments to key suppliers Reduction of operational and payment costs: one single direct debit for total of maturing payments Improved global supplier relationships Liquidity on demand provided by sale of trade receivables before maturity Diversification of funding sources Competitive funding rate Off balance, non-recourse funding, ratio improvement Reduction/elimination of credit risk on Buyer and possible savings in credit insurance Transparency and information: cash flow forecasting and certainty (full insight in payment status); reconciliation tool; early dispute warning 11

13 ING Working Capital Solutions Factoring

14 Products of ING Commercial Finance 1 Financing 2 Credit management 3 Services Credit insurance 1. Financing 3. Credit Insurance Commercial Finance 2. Credit management 2. Debtoradministration

15 Simplified Factoring process The Debtor Our Client Our fee Factoring company 1. Clients delivers product to debtor 2. Client transfers invoice to ING 3. ING pays invoice to client (20% discount) 4. Debtor pays invoice to ING 5. ING pays remaining amount less fee to client 14

16 Factoring principles Recourse Method Financing of a granular or a non-granular pool of trade receivables Financing will be made available through overdraft-facility Non-recourse or recourse structures, ranging from simple to tailor-made Principles All in invoices are in scope if delivery/performing of product/service is eligible and final Don ts: project financing, BtoC, registred contractors and Intercompany Local structures in main European countries, which can also finance/service receivables from other countries Selection of debtors possible (concentration up to 30%) Full cash dominion by ING Commercial Finance 15

17 Key benefits for client Funding Client - Diversification of funding sources, potentially in addition to clean lending limits (Carve out) - Asset based funding allows competitive pricing - No Finance limit: financing follows growth of the company - Financing is based mainly on quality of portfolio (Secured Financing) - Direct access to cash stuck in receivables Off-balance sheet possibility - Improved financial ratios and potentially lower syndicated facility pricing grid Simplicity - Flexible structure from simple to tailor-made - Simple features and follow up Credit management tool - Management information by Creditview - Possibility to outsource the servicing of the trade receivables - A credit insurance with 100% coverage 16

18 ING WCS Products help you close the cash gap in working capital Order Received TRPP / Factoring Solutions Cash Received Forecast to Fulfill (Inventory) Order Order to Cash to Cash (Receivables) Timeline Purchase Purchase to Pay to (Payables) (Payables) Net cash gap is narrowed by WCS products Net Cash Tied up in W/C Order Placed Supply Chain Finance Cash Paid Out 17

19 Questions & Answers 18

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