Ter Meulen Finance: Bridging Gaps in Receivable Financing

Ter Meulen finance, also known as ‘cession’ or ‘assignment’ finance, is a specialized form of lending frequently used in the Netherlands and other European countries. It’s a method of securing financing where a company assigns its accounts receivable (invoices) as collateral to a lender. Unlike factoring or invoice discounting, which often involve the lender taking ownership of the receivables, Ter Meulen finance primarily focuses on using those receivables as security against a loan.

Here’s how it generally works: a business needs capital but prefers to maintain control over its customer relationships. Instead of selling its invoices outright, the company identifies a pool of eligible receivables from its customer base. These invoices are then formally assigned to a lender, who provides a loan based on a percentage of the value of those assigned receivables. The company continues to manage its customer relationships, collecting payments from its customers and remitting those payments to the lender to repay the loan. Crucially, if a customer fails to pay, the business, not the lender, typically bears the risk of the bad debt. This is a key differentiator compared to factoring, where the factor might absorb the credit risk.

Several benefits make Ter Meulen finance appealing. Firstly, it allows businesses to access capital quickly without disrupting existing customer relationships. The company retains control over invoicing, collection, and customer service. Secondly, it can be a more discreet form of financing compared to factoring, as customers may not be directly aware of the assignment arrangement. This is valuable for companies that want to avoid signaling financial difficulties to their clients. Thirdly, it provides access to funding secured against assets that are already on the balance sheet: the receivables.

However, there are also considerations. The cost of Ter Meulen finance can be higher than traditional bank loans, reflecting the perceived risk to the lender. The lender will thoroughly assess the creditworthiness of both the borrowing company and its customers. They will likely implement robust monitoring procedures to track invoice payments and manage potential delinquencies. Another consideration is the administrative burden of managing the assignment process and regularly reporting on receivable performance to the lender.

The eligibility criteria for Ter Meulen finance can be stringent. Lenders often require a relatively large pool of stable and creditworthy customers. The invoicing process must be well-documented and auditable. The lender will also need legal assurance that the assignment of receivables is valid and enforceable. In conclusion, Ter Meulen finance is a valuable financing tool for businesses, particularly those with strong customer relationships and a predictable flow of receivables. While it offers benefits in terms of control and discretion, companies need to carefully weigh the costs, administrative requirements, and eligibility criteria before pursuing this type of financing. It’s a nuanced approach to asset-based lending, requiring careful planning and transparent communication between the borrower and lender.