Why commodity traders need to optimise their working capital and liquidity position


Times like these show how important it is to finance your transactions as light and as nimble as possible. The financing is preferably kept short and cheap while incurring the least amount of risk. At Aon’s Commodity Industry Practice we pride ourselves to manage these risks for our clients in the best and most competitive way.

Next to Risk Management, we can also help to optimize your working capital and liquidity position. We do this by focusing on 3 key areas;

1. Trade Receivables:
The longer the payment terms, the longer funds will be locked up with your outstanding invoices. By structuring and broking receivable financing with or without recourse by means of factoring or true sale. Your direct benefits could be;

  • Cheaper (total) cost of transactional financing by;
    o Leveraging on your client’s credit rating;
    o Shortening financing cycles, freeing up financing lines;
    o Paying your Supplier early against a discount.
  • Decrease or off-load risk by;
    o Enhancing credit-risk insurance conditions on portfolio, single-name or named-buyer basis;
    o True sale solutions (without recourse financing);
  • Lighten your balance sheet;
    o By selling your receivables (enhancing financial ratio’s and financial covenants)
  • Competitive advantage;
    o By offering longer payment terms to clients

2. Trade Payables
Source credit insurance capacity on yourself and obtain better terms from your suppliers, whilst providing them additional security for fulfilling your payment obligations.

Your direct benefits could be;

  • Obtaining longer payment terms, directly benefitting your working capital position;
  • Better supplier-credit conditions, by offering an insured payment obligation in return;
  • Having a cheaper alternative to issuing a Bank Guarantee;
  • Better Supply Chain Financing conditions.

3. Bank Guarantees and Sureties:
Bank guarantees are labeled as contingent risk and usually cash or a part of your available credit will be blocked, serving as collateral. At Aon we can provide you with a Surety-facility. The Sureties that are issued under such facility will be issued by investment-grade insurers and as such can replace Bank Guarantees, in turn freeing up room with your bank-facilities.

The Surety Facility is unsecured and your direct benefits could be;

  • Having an alternative to using cash (or credit lines) to issue a Bank Guarantee (contingent risk), as such;
  • Improved working capital position (the available room with your banking lines is not affected anymore)
  • Obtaining a more competitive pricing by issuing a Surety compared to issuing Bank Guarantees.
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