Greensill specialised in a form of supply chain finance called invoice discounting,
Greensill did reverse invoice financing.
In invoice financing you contract to speed up payment of your sales ledger. In the reverse form you contract to speed up payment of your purchase ledger – while, obviously, delaying you having to actually pay it. It’s about money out, not money in.
The danger is that an invoice discounting operation spreads the credit risk across all those different buyers. A reverse book concentrates the risk into the purchase ledger of just the one company, the client.
The finance firm turned invoices from Gupta’s businesses into hard cash. When a customer bought from his Liberty Steel, the invoice was forwarded to Greensill. That IOU was classed as a receivable with a value close to cash. The finance firm assumed responsibility for the debt and handed the cash to Liberty — instead of making the steel-maker wait for anything from 30 to 180 days, as would normally be the case for payment from buyers.
No, that’s invoice discounting, Greensill specialised in reverse invoice discounting. When Liberty bought something Greensill advanced payment for it and waited to collect from Liberty.
Greensill provided Gupta with huge sums to buy assets from companies including Tata, Arcelor Mittal and Rio via invoice discounting, where it advanced cash to Gupta and took on its customers’ IOUs.