Supply chain finance comes to tariff refunds

Navigating the ins and outs of global trade regulations, the subject of one of the features in the January 2020 issue of Supply Chain Management Review, has never been for the feint of heart. The complexity and uncertainty associated with tariffs has only added to the challenges faced by supply chain managers whose operations span borders. At the same time as the administration announces a likely trade deal with China, it also announces the possibility on more tariffs with our European partners.

And, at 10 to 25% on many goods, those tariffs aren't cheap. According to Dave Skirzenski, the CEO of Raistone Capital, a supply chain finance and fintech firm focused on structured finance, about $120 billion have been paid on the $600 billion imposed on 301 tariffs on goods being imported from China.

That's been widely reported. What has received less attention, Skirzenski points out, “is that there was an exclusion process. A company can go to the government and say, ‘I can't get this from anywhere but China or this is not the company the government thinks it is and the tariffs should be excluded.'” In those instances, a company can file for an exclusion and a refund – they can even piggyback on the success of another company that has filed for an exclusion for the same product. And, you have a year to file for an exclusion. “A well-educated importer can go to the government website, work with their customs broker to figure out the process and then wait up to a year to get paid,” Skirzenski explains.

Like everything else associated with tariffs in the last year or so, the process is complex and time-consuming followed by a lengthy period of time before a company gets its refund. Enter Raistone Capital, which was already in the business of supplier financing, or paying suppliers faster than their customers' terms in return for a fee. The firms was established as an independent company by the investment bank Seaport Global, and has since raised more capital from hedge funds, pension and insurance groups and high net worth individuals, including a multi-billion dollar infusion from a large Family Office.

Raistone created an Accelerated Tariff Program that is essentially an H&R Block for tariff refunds. A Raistone analyst will help you through the application process; if you qualify for the refund, you can get your money in as little as a day, less Raistone's fee. The amount “depends on where the company is in the cycle,” says Skirzenski. “If you haven't even begun to think about it, it might be 80 cents on the dollar. If you're a large importer with clean data and sophisticated customs processes, it could be 90 cents on the dollar.”

The program is relatively new, with outreach starting a few weeks ago. So, how's it going? “We're getting about 6 inbound demands a week, so the demand is there,” Skirzenski says. The deals so far have been valued at below $5 million. “I think some companies are trying to figure out how to value the service: Is getting 85 cents on the dollar now worth it compared to figuring this all out on your own and then waiting a year to get the refund,” he adds.

Financing the refund of tariffs was a unique opportunity, Skirzenski says, and one that may have a shelf life if the administration removes tariffs with China. The supplier financing world, on the other hand, is ripe for growth. “The space today is going through massive disruption,” Skirzenski notes. “New banking regulations along with some high profile failures of companies that used supplier financing to mislead investors are making it unprofitable for banks to continue to offer these products. There's a wholesale shift away from banks and into other financial institutions.”

SC
MR