GROWING up on a sugar-cane farm in Australia, Lex Greensill had a front-seat view of the strains suppliers suffer as they wait to be paid. After harvesting his crops, Mr Greensill’s father had to wait a year or more to receive payment. Across industries, buyers are eager to conserve their cash. Delaying payment is one way to do it: among the most important for some, such as big retailers, says Mr Greensill. Many buyers expect their suppliers to accept payment months after delivery. Even so, many still pay late—47% of suppliers surveyed by Taulia, a fintech firm, said they had this problem. In 2011 Mr Greensill founded Greensill Capital, one of a cluster of new fintech firms overhauling how supply chains are financed.
The details vary but their basic approach is to take advantage of buyers’ low credit risk to pay suppliers’ invoices promptly. The buyer—a large supermarket chain, say—approves a supplier’s invoice and transmits it to the fintech lender. (The lender can raise money in different ways: Greensill raises funds in the capital markets.) The lender pays the supplier on the agreed date or, if requested, earlier, less a small discount. With interest rates at present low, the period of finance short and the credit risk that of the supermarket chain rather than the supplier itself, the discount may be so low as to be almost unnoticeable. The lender later collects the full value of the invoice from the buyer. This improves the cashflow for suppliers without shortening payment terms for buyers, freeing up working capital for both parties and creating a healthier, more secure supply chain.