Finance

The chains of command

June 11, 2013

Credit facilities for small and medium-sized enterprises (SMEs) have been deteriorating over the last few years. Bank financing, the usual source of financing for SMEs, has been curtailed drastically for different reasons, most of them related to the recent and current events in the economic and financial environment. Especially SMEs, being small and less diversified than larger companies, are prone to the impacts of negative economic circumstances. Currently many SMEs are looking desperately for alternative ways to finance their operations and working capital needs.

Image: © Nationale Beeldbank

Together with professors Leo Verhoef and Jimme Keizer from Eindhoven University of Technology and Hogeschool Zuyd, and Jos Rooijakkers, managing director at Rabobank Eindhoven-Veldhoven, professor of Finance and Innovation Ronald Mahieu from TIAS School for Business and Society, started collaborations on a research project that explores the alternative financing arrangements for SMEs using data from companies active in the South-east Brabant region. Rabobank is involved as a sponsoring partner in kind in this research project.

Creditworthiness of a supplier

One part of this research project focuses on newly developed ideas in supply chain finance (SCF). The traditional SCF solutions focus on developing financing arrangements that can be facilitated by exploiting the relative creditworthiness of the different players active in a particular supply chain. Ronald Mahieu: “Take for example, a large company like Philips. Such a company has a much higher creditworthiness than a smaller supplier. The risks (operational, financial) that this supplier runs are much higher than the risks Philips has. But note that Philips can use its higher credit status to grant supplier credit to the smaller supplier. By using concepts like reverse factoring, further improvements in the financial chain of command can be made. An important additional advantage of all these SCF arrangements is that long-term supplier relations are also supported. As a result (economic) sustainability is enhanced.”

This research project is focused on finding new business models based on innovative financing arrangements. The ideas touch upon identifying the best practices from both Anglo-Saxon and Rhineland economic models. Especially in the latter model, much more room exists for exploring social, sustainable and environmental aspects of doing business. From a financial perspective the research project will touch upon these issues via cooperative banking principles.

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