The rules could classify 15% to 20% of receivables for which factoring firms bear the risk as defaulted. Supply chain finance firms pay a company’s suppliers the value of their outstanding invoices minus a discount. The suppliers get their money faster while the lenders earn a relatively safe return when the invoice is paid.
Starting with 2021, the European Banking Authority will hold lenders in the region to a common definition of default after finding big differences in how they deal with one of the most fundamental issues in banking.
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