New Asset Class : Invoice

Background

There is a quite popular asset class for SME business,

invoice financing
invoice factoring
account receivable
trading receivable

Cashflow Attributes

All of these asset types has a common attributes

with a fixed face value
an optional fee
with a fix term and all payments happened at the last day

Principal

At last payment date, all balance shall be paid off by once.

Fee

N% of outstanding balance per period ( per day, per week, per month)
N% of outstanding balance
A fixed fee at N$ amount ?
A compound of above

Asset performance metrics

Default behavior

CDR way

For all the assets in the pool, given a constant default rate 12%. if the asset has a term of 6 months, then it shall default around 6% of it's balance. The longer the term , then the larger default rate will be occurred. i.e. face value 100$ with 12 month, if CDR = 10%，the after 12 month, only get 90$ back. if it is 6 month term, then it will get around 95$ back

100% default way.

User can select a subset of assets in the pool, and flag them as defaulted. then during the cashflow projection, the engine won't get any cash at the payment date from such assets.

Delinquency

User can supply with delinquency assumption like :

delinquency by (N days/N weeks/N months)
N% of the outstanding balance will go to status of "Defaulted"
(1-N)% of outstanding balance will be repaid( includes the fees, if fee due > total outstanding balance, exceeds will be booked as loss ) .
fees may incur during the delinquency period as well.

Default by borrowers?

I'm assuming the invoice may have concentrate risk, so , the default assumption may be applied on borrower level instead of asset level . if a borrower defaulted, then all the assets under such borrower should be flag as default as well.

The default may look like a CDR way ,or 100% Default way for a borrower.

Revolving ?

yes

reference

(https://github.com/yellowbean/Hastructure/files/14669582/Invoice.Financing.vs.Invoice.Factoring_.What.s.the.Difference_.-.NerdWallet.pdf) [Invoice Financing vs. Invoice Factoring What’s the Difference - NerdWallet.pdf] (url: https://www.nerdwallet.com/article/small-business/invoice-factoring-vs-invoice-financing)

yellowbean / Hastructure