Recent reports told us that Woolworths sought to extend payment terms for their food and grocery suppliers. As in many cases, the effort to extend payment terms was met with a lot of supplier resistance and less than glowing press.
Business in general is very competitive and it doesn’t take much to make an operation uncompetitive. Many supply chains are full of Small to Medium sized Enterprises (SMEs).
When SMEs are supplying a large corporate customer, the power to resist the change in payment terms, or claw back some ground by raising prices, is very constrained.
However, suppliers can take back control of the increasingly delayed payments they receive. By having specific invoices paid early they can accelerate the cash flow from their customers (improving Days Sales Outstanding – DSO) solving the problems and costs that come with slow cash flow. In a recently published report, PwC have provided data on this trend in their 2015 Working Capital Survey. This shows the strong global trend in reducing DSO as part of optimising working capital. In fact, the PwC report also points out that SMEs lag their larger peers when it comes to optimising their investment in working capital.
For buyers, when seeking to drive cash flow improvement through payment term extension, the real opportunity is to engage closely with their suppliers and support them by recognising there is way to manage the impact of such changes to the buyer– supplier dynamic.
An emerging trend is to facilitate a buyer centric supplier funding program (invoice financing), where the buyer actively facilitates the introduction of invoice finance to its suppliers. The supplier retains control of the timing and the cost of funding their invoice.
Benefits of a buyer facilitated program for suppliers:
- Significantly lower cost of finance
- Easy to use online platform to manage invoices and receivables
- Ability to quickly determine which invoices have been approved for payment without the need to chase accounts payable
You can directly find out from your customers if they offer a supply chain finance program. If they don’t currently have such a program, services such as Timelio can speak to them on your behalf and demonstrate how offering supply chain finance could mutually benefit you both.