In this blog we will discuss “How Greensill make money”, Particularly how the company progressed overtime. What makes Greensill different from other companies, The early history of Greensill, particularly how Greensill earns revenue through their business model.

How does Greensill make money?

Greensill is supported by loans provided by specialized supply chain investment funds. Greensill regularly issues these notes that are later brought by the investment fund; thus, this is how Greensill makes money.

Greensill Capital provided payment services including factoring and supply chain financing. It is a Company that provides financial services in the UK and Australia. The company was originated by a person named Lex Greensill, however later on it was filed for solvency protection in the year 2021.

Greensill Funding model:

A bill is sent to the consumer by the service provider during normal business operations. A reduced rate of payment is then agreed upon by Greensill and the supplier, based on the face value of the receivable. Those receivables that are unfortunately not considered as the idea investment grade benefit from insurance, those are sold with it. Assets are later on sold to shareholders either directly through the allocation of receivables or indirectly through the sale of notes backed by receivables, depending on the method of acquisition.

In exchange for the supplier receiving proceeds from the sale of receivables or any associated notes, Greensill pays the supplier. Despite the fact that Greensill has received cash from investors and utilised those monies to pay the supplier, no payment has been received from the buyer.

How does Greensill make money?

As part of its marketing strategy, Greensill claims that it “uses the power of financial markets to liberate funds on terms that are customised to meet the needs of our clients” by providing “new and innovative solutions” at lower prices than traditional banks.

Company earns money by acquiring invoices from the suppliers of its clients in exchange for a fee, a method known as supply chain financing, and reselling them to its clients. In this case, the description of how Greensill produces money is more obvious.

The majority of its clientele are businesses. Companies such as Vodafone in the United Kingdom and CIMIC in Australia are among those that have made use of the service. Additionally, it has been successful in selling its services to governments all over the world, but not in Australia, despite the fact that it has recruited the support of former foreign minister Julie Bishop to advertise its goods in that country.

With Greensill’s services, it is possible for the United Kingdom’s National Health Service to provide pharmacies throughout the country with the option of receiving money due for pharmaceutical services sooner than the government would normally pay them. This would allow pharmacies to provide better service to their patients.

As part of this collaboration, Greensill works with technology firms to build software that can be connected into the accounting systems of major corporations, enabling them to keep track of the invoices they receive.

Upon purchasing invoices, the company combines them together to construct short-term debt instruments that may be resold to investors such as banks and pension funds in order to fund their own acquisitions.

Following the acquisition of about $US10 billion ($12.9 billion) in packaged securities and the subsequent transfer of those assets to Credit Suisse’s four supply chain finance vehicles, Greensill has been able to preserve its liquidity. Having acquired more than $US10 billion ($12.9 billion) in packaged securities through the bank’s four supply chain finance vehicles over the previous three years, Credit Suisse has established itself as one of the market’s most active consumers of packaged securities.

As a result, Greensill Capital Pty Limited is primarily engaged in this line of business. The company is situated in Queensland and has a number of subsidiaries, including Greensill Capital (which is based in the United Kingdom) and Greensill Bank AG (which is based in Germany), among others. Greensill is a financial services firm based in Queensland, Australia, with operations in the United Kingdom and Germany. Its headquarters are in Brisbane. Greensill Capital Pty Limited is the corporation’s parent company, and it is situated in the Queensland state of Australia.

The financial institution does not publish specific details about its cash flow or clients, but the most current financial filings show that it produced sales of $US420 million and a net profit of $US31.8 million for the fiscal year that ended in December 2019. The new fiscal year begins on July 1, but the government has not yet released its financial results for the previous year.

History of Greensill

Greensill secured a $250 million investment from the American private equity firm General Atlantic in the first quarter of 2018. Greensill received extensive media attention in 2018, as well as a formal investigation of the company’s involvement in the Anglo-Swiss asset manager GAM scandal, which was requested by British City tycoon Lord Myners, who is a member of the House of Lords. Softbank invested $800 million in the company in the first quarter of 2019 through its Vision Fund. Through this investment, Greensill was able to quickly grow its team from 500 in early 2019 to over 1000 by the beginning of 2021, with employees spread over sixteen offices. Because of the Softbank investment, the company has put off examining alternative funding options, such as an initial public offering (IPO) (IPO).

By the end of 2020, the company had begun seeking for more investors with the goal of raising $500 to $600 million and launching an initial public offering (IPO) within two years. In order to achieve this goal, the firm chose to sell all four of its aircraft, including a Gulfstream 650, in accordance with the board’s directive.

When outgrowing the business’s previous auditor, Saffery Champness, Greensill began looking for a new auditor in late 2020, after the firm outgrew Saffery Champness. KPMG, Deloitte, the Big Four accounting firms, as well as the smaller accounting firm BDO, all rejected Greensill’s new auditors.

To truly understand Greensill’s goal, we must first understand what they offer, which is Supply Chain Financing. The goal of supply chain finance is to tackle a common business problem.

Given that firms that customarily sell goods and services to clients submit an invoice for payment, which is preferentially paid relatively immediately. However, the consumer may postpone it, particularly if the customer base is large and important.

In this case, the customer may insist on giving them a few months to complete the amount. With reserve factoring in supply chain management, a financial institution offers to step in and pay the supplier on the customer’s behalf sooner, minus a modest fee that they consider part of their fee. On paper, everyone wins because the customer settles with the financial institution at an agreed-upon date.

However, this is only a simplified example. The difficulties in the real world are exceedingly complex. Supply chain management has recently embraced the prospect of Creative Accounting, which is a movement in accounting regulations toward a more market-based viewpoint.

This effectively means that the job of keeping accounts has shifted from valuing previous transactions to valuing future cashflows. Many assets are now evaluated based on their present market value or even modelled forecasts of future cashflows rather than the price paid for them. This is also true for some contracts in which gains are booked based on future assumptions. This method of accounting allows for judgement, subjectivity, and guesswork.

Cashflow and earnings were significantly out of sync at Carillion, the outsourcing company that went bankrupt in 2018. This was a distinguishing feature of the company’s demise. To fast forward to Greensill, which was not linked with Carillion but did have factoring relationships with a number of other notable firms. The difference between straight “factoring” and reverse factoring is that straight “factoring” happens when a firm sells its invoices or receivables to a third party at a discount, whereas reverse factoring delivers early payments to a customer’s suppliers.

The collateral backing several of Greensill’s acquisitions seemed to be speculative as the company pushed for more growth and development. Several results of the inquiry revealed that, in addition to lending against invoices for transactions that had already taken place, Greensill also loaned against “prospective receivables” that the firm may create in the future, according to the findings of the investigation. As a result of this, it would lend against transactions that had not yet occurred and may never occur between organisations that had never done business with its customers.

Greensill was taking a big risk when he entered the NHS payment system negotiations. Because of the state’s creditworthiness, the transaction, if secured, would have presented Greensill with a very substantial, near-riskless income stream. However, if the corporation become an integral element of the public sector payment mechanism, it may have caused significant too-big-to-fail concerns.

Supply chain finance has many advantages, but it can be abused when employed as a temporary cure for a surreal, holographic type of capitalism. Greensill’s plan was never going to be viable in the long run because debts had to be settled at some point.

In this blog, we explored the issue, “How does Greensill make money?” We determined that Greensill makes money through loans made available by specialized supply chain investment funds. Greensill issues these notes on a regular basis, which are then purchased by the investment fund. We also learned about the objective of supply chain management and how Greensill came to be solvent in the end.

Frequently Asked Questions (FAQs):  How does Greensill make money?

Why did Greensill collapse?

Greensill collapsed because the loans were based on pre-existing sales, therefore Greensill was essentially smoothing out a kink in the cash flow. Greensill Capital declared insolvency in March, and administrators were attempting to disentangle the company’s dealings and refund money to creditors.

Where is lexx Greensill now?

Mr. Greensill has remained in Saughall with his English doctor wife and two sons in 2014. He is no longer a globe-trotting private jet flyer, and it is believed he has not returned to Queensland to see his family.

When did Greensill collapse?

Greensill collapsed in 2021

What is Greensill Capital worth?

Greensill Capital’s most recent investment round was estimated to be $655 million in October 2019. Greensill Capital has raised $1.7 billion in total. Greensill Capital’s newest valuation is said to be $3.5 billion.

Who is Lexx Greensill?

Alexander David “Lex” Greensill CBE, who was born in December of 1976 is an Australian businessman best known for being the founder of Greensill Capital

What does Greensill do?

Greensill Capital was a financial services firm with offices in the UK and Australia. It specialized in supply chain financing and related services.

References

Leaver, A. (2021, April 15). The Guardian. Retrieved from What did Greensill Capital actually do?: https://www.theguardian.com/commentisfree/2021/apr/15/what-did-greensill-capital-actually-do

Wiggins, J. (2021, March 2). How Greensill Capital makes its money. Retrieved from Financial Review: https://www.afr.com/companies/financial-services/how-greensill-capital-makes-its-money-20210302-p5772q

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