Octet’s Business Transaction Facility is an integrated working capital solution for your business that can provide funding for purchase orders (imports), purchases (domestic and imports), sales (domestic and exports) and also accounts receivable.
There are various options as to how the Business Transaction Facility can be used.
Business Transaction Facility - Purchases
This is the primary facility that is offered on an unsecured basis to businesses that meet the required criteria. This facility is in the form of a loan made to a buyer of goods or services for the express purpose of making purchases from a seller.
The buyer and seller must belong to the Octet Closed Community and both have agreed to transact via Octet’s portal, which provides Octet and any other respective financier visibility of the complete transaction cycle.
The buyer’s financier remits the proceeds of the loan to the financier of the seller of those goods or services and then onto the seller. The buyer gets up to 60 days interest free credit and then repays the loan over the next few months subject to predetermined minimum repayments conditions. The buyer may make purchases from any seller belonging to the Octet Closed Community up to their predetermined credit limit.
The benefit to the seller of the goods or services is that they no longer have to give open account terms to the buyer. This eliminates the seller’s credit risk and reduces not only their funding requirements but the impact of disputes being raised by buyers to delay payment obligations.
Businesses that originally join Octet as a buyer can then easily become a seller, thereby doubling their benefits from being members of Octet. By becoming a seller and introducing their own customers to Octet this business can now convert all existing credit sales to cash sales.
Business Transaction Facility – Purchase Order Funding
Once a Business Transaction Facility – Purchases has been established, the predetermined credit limit can be utilised for purchase order deposits that are common terms of trade when dealing with Mainland China and other Asian countries. The same repayment terms as the purchasing facility apply.
Business Transaction Facility - Seller Limit
When a business sells to another business on credit there is always the risk that their buyer will not be able to pay the debt when it falls due. In addition to taking the credit risk, the selling business is utilising its own working capital to provide credit to the buyer. This is further impacted by the prospect of disputes being raised to delay or avoid repayment. Octet can assist by setting a limit for the Seller based on their creditworthiness (Seller Limit). This Seller Limit can be allocated to a designated buyer, and is added to the availability of the Purchase Business Transaction Facility of that buyer.
The Seller Limit enables the seller to get paid (in full) for the sale immediately by Octet. With Octet providing the necessary funding, the buyer is still able to benefit from having credit terms up to 120 days with the first 60 days being interest free.
Under the Seller Limit facility the seller is responsible for reimbursing Octet should the buyer fail to meet their repayment obligations.
Business Transaction Facility - Asset Based
It is possible that the unsecured Purchase Facility will be insufficient for the total working capital requirements of the business. In this situation Octet may also offer an Asset-Based Business Transaction Facility to increase the total available facilities for working capital.
The type of security offered is not constrained to a particular asset class at this point. It may be a fixed asset such as property or a current asset such as trade receivables. It may be a charge over a specific asset or a general charge over the assets of the company.
Octet will assess the amount to which it is prepared to lend against this asset or these assets. The business will be able to draw cash to the value of the facility limit or allocate an amount to utilise under their Purchase Facility.
With an Asset Based Business Transaction Facility, the specified assets will be revalued by Octet on a periodic basis. If the asset has a relatively static value (for example property), then the revaluation will be infrequent.
Business Transaction Facility - Accounts Receivable
A further variation of the Asset Based Business Transaction Facility is where the trade receivables of the business are available as security. Although in principle it is treated similarly to the Asset Based Business Transaction Facility, due to the nature of this fluctuating asset there are other considerations that would apply.
As with the Asset Based Business Transaction Facility, the business will initially provide details of their outstanding accounts receivable to which Octet would apply certain reserves in order to establish a funding amount. These reserves will be based on the ageing of the outstanding balances as well as other considerations (such as negative credit information on the customers).
The business has the flexibility to either allocate the resulting availability against any of its other Business Transaction Facility’s or can draw the funds as cash.
Because the value of the accounts receivable constantly fluctuates, increasing with new credit sales and decreasing as payments are received it is a requirement that all receipts from account receivables are paid into a separate bank account set up by the business but controlled by Octet.
The business must supply a data submission on a regular basis. The data submission will include a name and address listing of all active buyers, an open item accounts receivable ledger and a reconciliation showing how the ledger has changed value from one submission to the next. Upon receipt of the submission, the asset will be revalued and the loan availability will either rise or fall.
If the asset falls in value to the extent that the availability becomes negative then the business will be required to immediately repay the shortfall to Octet.