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Exploring and Securing Premium Debts in 2025: An Unutilized Opportunity in Private Lending Industry

In a time when conventional banks are reducing their operations, obtaining receivables serves as a strategic entrance into the transforming realm of private lending.

Businessman is being provided with cash and a pen for signature, facilitating a fraudulent...
Businessman is being provided with cash and a pen for signature, facilitating a fraudulent transaction within the agreement of sale, embodying elements of corruption and bribery.

Exploring and Securing Premium Debts in 2025: An Unutilized Opportunity in Private Lending Industry

Andreas Schweitzer, the founding director of Artis Trade Invest, invests in secured transactions.

The strategy of purchasing receivables is gaining traction as a crucial aspect of asset-backed financing (ABF), valued at more than $15 trillion. Factoring, a significant segment, currently stands at $4.18 trillion and is projected to surpass $8.4 trillion by 2030, growing at a Compound Annual Growth Rate (CAGR) of 10.5%. Due to the burden of Basel III regulations, banks are diminishing their involvement in certain asset classes, allowing private credit funds to fill the financing gaps. By converting trade invoices into temporary, self-liquidating assets, sourcing receivables provides liquidity and unlocks value in underrepresented markets, signifying a new era in private credit.

Basel III and the Ascendancy of Private Credit

Following the worldwide financial crisis, regulatory alterations such as Basel III raised the cost of capital for riskier investments like leveraged finance lending, leading banks to decrease their direct involvement in specific asset classes in favor of arranging financing solutions for external parties.

Private credit funds are revolutionizing the industry, encouraging banks to reevaluate their balance sheets and transition from holding loans to distributing them via partnerships or forward-flow agreements. Sourcing receivables is becoming a crucial part of this ecosystem, enabling personalized, efficient financing solutions.

Since 2008, private credit has experienced remarkable growth, expanding tenfold to an estimated $2 trillion by the end of 2023. While still accounting for a tiny fraction of the broader fixed-income market, private financing options are increasingly outperforming traditional bank lending. Experts predict the addressable market for private credit may surpass $30 trillion in the United States alone.

Sourcing Receivables: A Crucial Component of Private Credit

Sourcing receivables involves acquiring trade invoices owed by buyers to suppliers, then transforming these invoices into self-liquidating, low-risk assets. This endeavor serves as a crucial intermediate activity in the private credit value chain, linking the initial phase of origination (via trade and factoring) with subsequent investment returns.

This approach differs from other forms of private credit:

• Unlike ABF, sourcing receivables focuses primarily on the liquidity and predictability of trade-related cash flows, contrasting with ABF's broader range of asset-backed instruments.

• In comparison to traditional private debt, trade receivables have shorter durations (30–90 days) and are often backed by credit insurance or other forms of collateral, ensuring they are more stable and scalable.

High-Yield Opportunities

Non-bankable sectors, such as SMEs and emerging markets, often present higher returns due to their underrepresentation. For instance, the MSME finance divide currently amounts to $5.7 trillion worldwide, with an additional $2.3 trillion in informal enterprises. In emerging markets like the Global South, 70% of SMEs lack adequate financing.

This financial deficit offers significant opportunities for private credit funds to charge a premium for providing financing where traditional banks cannot—furthermore, non-bankable sectors appeal to investors seeking diversification and superior returns. Funds that strategically source receivables in these areas can unlock hidden value while supporting global trade and economic growth.

Impact Investing and Aligning Receivables with ESG Goals

Sourcing receivables can also contribute to ESG goals by financing sustainable supply chains, women-led SMEs, and renewable energy projects. Funds investing in receivables from women-led businesses in emerging markets demonstrate how financial returns can coincide with social impact, fostering long-term value creation.

Technology Driving Receivables Efficiency

Fintech firms worldwide are leveraging AI, machine learning, and automation to unlock the potential in sourcing receivables. These technologies streamline processes, improve scalability, and enhance operational efficiency.

Europe: The Hub for Sourcing Receivables

Europe is the uncontested leader in global factoring and receivables, accounting for 64.47% of the $4 trillion market. The region's dominance is due to major players like Germany, with a CAGR of 10.9%, and France, with a CAGR of 9.5%. Manufacturing and SMEs drive receivables origination in Europe, establishing a rich and diverse pipeline for private credit funds.

The migration towards digital platforms and open-architecture partnerships further bolsters Europe's appeal as a market for sourcing receivables. These advancements enable funds to capitalize on the region's robust growth and operational efficiency.

Credit Insurance: Protecting Sourcing Receivables

Credit insurance safeguards against non-payment risks in sourced receivables, ensuring funds receive payments even in default situations. This added layer of protection is especially essential in non-bankable sectors with higher credit risks. Leading credit insurance providers have reported substantial growth in demand for credit insurance due to economic uncertainties and supply chain disruptions.

Latest data from ICISA, based on their 2020 research, shows that approximately 14.52% of global trade was protected by credit insurance at that time. This figure was expected to grow significantly, and with the exponential growth of the credit insurance market since then, it is now likely much higher. This growth underscores the increasing importance of credit insurance in mitigating risks and ensuring stability in global trade.

Credit-insured receivables blend higher yields from non-bankable sectors with reduced risk exposure, making them appealing for cautious diversification.

Exploring receivables, a crucial aspect of private loaning and asset-based financing, combines a blend of stability and development. Situated within the expansive $4.18 trillion invoice financing market, it offers investors temporary, self-liquidating assets, frequently reinforced by credit insurance.

This field caters to the funding requirements of underprivileged sectors such as SMEs and other specialized sections. Although it isn't essential, it can align with ESG objectives, making it a captivating prospect for financiers seeking both monetary rewards and substantial impact.

As conventional banks trim back their operations, sourcing receivables serves as a tactical entrance into the dynamic private credit world. It allows investors to access robust cash flows, generate value from worldwide commerce, and seize a market brimming with significant growth potential. Receivables sourcing offers a well-timed and transformative chance.

Please note that the info presented here is not financial, tax, or investment guidance. You are advised to consult a licensed professional to cater to your specific scenario.

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Andreas Schweitzer, the founding director of Artis Trade Invest, also invests in European markets, where factoring and receivables account for a significant portion of the $4 trillion invoice financing market.

With Europe being the uncontested leader in global factoring and receivables, private credit funds like Artis Trade Invest play a crucial role in sourcing and investing in these self-liquidating assets, contributing to the region's robust growth and operational efficiency.

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