Anchor Financing Explained

Anchor financing funds the suppliers and dealers around a single established business rather than assessing each of them on its own. The trading relationship with the anchor, and the payment record inside it, is what the facility is built on.

The problem it addresses

A large business rarely trades alone. It sits at the centre of a network of smaller suppliers and dealers, and those businesses are often short of the very cash the relationship requires. A dealer cannot take a bigger load because it cannot pay for the stock. A supplier cannot accept a bigger order because it cannot wait out the payment terms.

Each of those businesses, judged on its own financial statements, may look small. Set against a documented trading history with a large anchor, the same business looks quite different.

Two facilities

A programme runs on the same two short-term facilities offered directly. Which one applies depends on whether the anchor is buying or selling.

• Invoice discounting, where the anchor buys. The suppliers that have raised invoices on the anchor are paid early, ahead of the due date, rather than waiting out the anchor's payment terms. The anchor pays on the date the invoice was always due.
• Purchase financing, where the anchor sells. The dealers and distributors buying from the anchor are funded against a confirmed order, so a dealer can take delivery on credit rather than being limited by its own cash. The anchor is paid directly against the order.

The commercial logic is the same either way. Money goes where the trade is short of it, and the risk is assessed against a relationship that already has a record.

What it is assessed on

The distinguishing feature of an anchor programme is the information available to the assessment. A standalone facility is assessed largely on filed accounts. An anchor programme can additionally be assessed on the trading relationship itself.

• How long the business has traded with the anchor, and at what volume.
• Whether that trade is recurring or occasional.
• The settlement record within the relationship, invoice by invoice.
• Whether the trade is concentrated on the anchor or spread across many customers.

A business with three years of steady payments against a large anchor is a different proposition from one with the same balance sheet and no such record.

What it is not

Two points are commonly misunderstood, and both matter.

Where it fits

The facilities themselves are the same whether they are reached through a programme or directly: invoice discounting funds against invoices already raised, and purchase financing pays against a confirmed order. Both carry tenors of 30 to 120 days, and both are assessed on how the trade actually settles rather than on turnover alone.

Anchor financing is distinguished by its unit of assessment. The other two look at a single business and the people it trades with. This one looks at a network and the relationship holding it together.

General information only, not financial advice. Every facility is subject to credit assessment and to the applicable terms, conditions and documentation.