Working Capital Solutions

Marc HuijbenLaurent de CosterInternational Business WeekOctober 2012

Our Team at the conferenceAgenda

• ING Working Capital Solutions - Introduction

• WCS Products – Supply Chain Finance

• WCS Products –Factoring

• Q&A

2

Current financial climate has put working capital management on the agenda

Scarcity of liquidity Stricter regulations Economic downturn

• Economic environment  pressures profitability

• Will Greece leave the Euro?• Will the Euro survive?• Is China slowing down?

• Basel III and regulation of FI’s are constraining capital and lending

• Liquidity is scarce and banks are deleveraging

• Spanish rescue €100 billion• Falling down

• Working capital management has moved to the top of the agenda

• Treasurers seeking ways to unlock funds trapped in O2C and P2P

• Banks focussing more on flow and trade products

The Dilemma

Payment Date

Buyer Supplier

Collection Date

I want to pay late!

I want to collect early!

3

Net cash tied up in working capital impacts the short term liquidity and operational efficiency

Timeline

Order Placed

Cash Paid Out

Order Received

Cash Received

Net Cash Tied up in W/CPurchase to Pay (Payables)

Forecast to Fulfill (Inventory) Order to Cash (Receivables)

4

Timeline

Order Placed

Order Received

Cash Paid Out

Cash Received

Net Cash Tied up in W/CPurchase to Pay (Payables)

Forecast to Fulfill (Inventory) Order to Cash (Receivables)

5

ING WCS Products help you close the cash gap in working capital

TRPP / Factoring Solutions

Order to Cash

Purchase to Pay (Payables)

Supply Chain Finance

Net cash gap is narrowed by

WCS products

TRPP/Factoring and SCF are looking at different sides of balance sheet

• Focussed on the assets side of B/S

• Single ‘Receivables Purchase Agreement’ with the seller selling a (diversified) pool of trade receivables

• Repayment based on a (diversified) pool of trade receivables

• Focussed on the liabilities side of B/S

• One Buyer, multiple ‘Receivables Purchase Agreements’ with many suppliers

TRPP/Factoring Supply Chain Finance

A/RA/RA/R

Funded

Debtor 1Debtor 2

…Debtor n

Client (‘Seller’)Assets Liabilities

A/R

Supplier X

A/R

A/R

A/P

Funded

Improvedterms

Client (‘Buyer’)Assets Liabilities

Supplier Z

Supplier Y

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ING Working Capital Solutions

Supply Chain Finance

Buyer

How does SCF work?

SCF platform

Suppliers2

2. Send goods/services and invoice (business as usual)

3

3. Approve invoice and present on platform (This is new)

“I need cash”

4

4. Suppliers needs cash and requests early payment

5

5. ING pays invoice amount minus a small fee

6

6. Buyer pays ING invoice amount at due date

SuppliersInvoiceInvoice

1

1. Send purchase order (business as usual)

PO

8

SCF principles

Method ofworking capital

enhancement

Principles

• Non-recourse funding to key trade suppliers of ING Corporate clients

• Repayment relies on the relatively stronger credit quality of the Buyer

• Robust legal, accounting and tax framework

• Operate through a dedicated web-based platform -> Easy access for all!

• Suppliers (which typically have a worse credit rating than the Buyer) have the option to sell their trade receivables on the Buyer to ING:- before maturity, thereby getting access to non-recourse liquidity ‘on-demand’- at a discount based on the Buyer’s rating, resulting in lower financing cost

• The Buyer:- can monetise the value created for its suppliers by negotiating extended trade

payable terms or increased discounts - settles the payment at par of the trade receivables with ING at maturity date

• ING:- receives a margin reflecting the discount

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• Typically an investment grade Buyer purchases over 70% with non-investment grade suppliers

• The larger the difference in funding costs between Buyer and Suppliers, the more value can be created

Supplier segmentation mechanism

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Investment grade Buyer

€ 0

€ 100

€ 200

€ 300

€ 400

€ 500

€ 600

AA

A

AA

+

AA

AA

-

A+ A A-

BB

B+

BB

B

BB

B-

BB

+

BB

BB

-

B+ B B- 0%

1%

2%

3%

4%

5%

6%

7%

Spend

Cost of Funds

Non-investment grade Suppliers

Supplier’s average funding cost

Buyer’s funding cost

Funding cost differential

SCF benefits for buyer and suppliers

Buyer’sbenefits

Supplier’sbenefits

• Liquidity “on demand” provided by sale of trade receivables before maturity

• Diversification of funding sources

• Competitive funding rate

• Off balance, non-recourse funding, ratio improvement

• Reduction/elimination of credit risk on Buyer and possible savings in credit insurance

• Transparency and information: cash flow forecasting and certainty (full insight in payment status); reconciliation tool; early dispute warning

• Improved terms of trade by

- negotiating extended payment terms and increased discounts

- standardisation of terms; payment frequency

• Automation of payments to key suppliers

• Reduction of operational and payment costs: one single direct debit for total of maturing payments

• Improved global supplier relationships

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ING Working Capital Solutions

Factoring

Financing1

Commercial Finance

Credit insuranceCredit management

Services2 3

2. Debtoradministration

2. Credit management

1. Financing

3. Credit Insurance

Products of ING Commercial Finance

Simplified Factoring process

The Debtor Our Client

Factoring company

1. Clients delivers product to debtor

2. Client transfers invoice to ING

3. ING pays invoice to client (20% discount)

4. Debtor pays invoice to ING

5. ING pays remaining amount less fee to client

Our fee

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Factoring principles

Principles

• All in invoices are in scope if delivery/performing of product/service is eligible and final

• Don’ts: project financing, BtoC, registred contractors and Intercompany

• Local structures in main European countries, which can also finance/service receivables from other countries

• Selection of debtors possible (concentration up to 30%)

• Full cash dominion by ING Commercial Finance

Recourse

Method

• Financing of a granular or a non-granular pool of trade receivables

• Financing will be made available through overdraft-facility

• Non-recourse or recourse structures, ranging from simple to tailor-made

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Client

Key benefits for client

• Funding- Diversification of funding sources, potentially in addition to clean lending limits (Carve out)- Asset based funding allows competitive pricing- No Finance limit: financing follows growth of the company- Financing is based mainly on quality of portfolio (Secured Financing)- Direct access to cash stuck in receivables

• Off-balance sheet possibility- Improved financial ratios and potentially lower syndicated facility pricing grid

• Simplicity- Flexible structure from simple to tailor-made - Simple features and follow up

• Credit management tool- Management information by Creditview- Possibility to outsource the servicing of the trade receivables - A credit insurance with 100% coverage

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Timeline

Order Placed

Order Received

Cash Paid Out

Cash Received

Net Cash Tied up in W/CPurchase to Pay (Payables)

Forecast to Fulfill (Inventory) Order to Cash (Receivables)

17

ING WCS Products help you close the cash gap in working capital

TRPP / Factoring Solutions

Order to Cash

Purchase to Pay (Payables)

Supply Chain Finance

Net cash gap is narrowed by

WCS products

Questions & Answers

18