All types of asset-backed financing faced some issues during the crisis, and asset-backed receivables finance is no exception. Regardless of the strength of the underlying collateral, investors pulled away from any type of risk that had the stench of ABS and either held onto their money or put it in products perceived as more secure.

As a result, receivables securitization and asset-based lending saw issuance drop and spreads widen during the height of the crisis. Yet the strength of the underlying collateral shone through, and even being touched by the taint of monoline involvement hasn’t stopped new issuance and new receivables-backed models from returning to the fore.

In addition to the buyer-driven supply chain finance models we discussed on Friday  – where a company sets up a program to help its suppliers finance their receivables - another big growth area is on the other side of the working capital spectrum – supplier-driven receivables financing. This is where companies look to finance their own receivables to increase available working capital and reduce days sales outstanding (DSO).

In this situation it is not the buyer who sets up a program, but the supplier who goes out to their banks or other financial institutions to initiate a receivables purchase program. From an FI perspective, receivables are generally ring-fenced, creating an asset-backed transaction where the company sells its receivables to a special purpose entity that sells the rights to future flows from those assets to the FI or investor. This disintermediates the buyer from the equation – it allows the supplier to sell receivables from its various buyers without the need for a specific financing agreement with each buyer and interaction with each buyer’s bank.