Companies are seeing more value in the supply chain these days and they’re also finding that helping their customers can also mean helping themselves. That is, they’re discovering new ways to inject financing into the supply chain in ways that help them with things like days payable outstanding (DPO) while at the same time, keeping vendors happy.
And the sector that is helping them on this journey of supply chain discovery is financial technology. Fintech companies have been able to insert themselves into the supply chain and facilitate transactions between companies and their suppliers. With more efficient tech, they help both the buyer and supplier to improve working capital by making it possible for the buyer to extend its payables and at the same time accelerate payment to the supplier. This means greater liquidity and less variability in the timing of payments for both sides.
And a recent survey within the NeuGroup universe backs this up. Members were recently asked whether they had a supply chain finance program what the main objective of it was. The answers were varied but most all indicated that they wanted to make decent financing available to customers. This could reflect the increasing competition in the market (i.e., if you don’t help me, I’ll buy from someone else) but also reflects the win-win nature of available programs.
One respondent, a large US consumer products company said it’s had an SCF program for several years mainly for its largest “and most strategic suppliers.” But more recently it’s decided to launch a new program “for nearly all other suppliers in the US and Europe.” The goal, this respondent said, was to “improve our working capital and DPO metric while giving vendors faster access to cash at attractive financing rates.”
DPO was a major consideration for many MNCs in their responses. Another respondent said his company didn’t have an SCF but they are considering it. That’s because “working capital optimization is a priority this year.” They also are considering a vendor finance program “to help us extend DPO and offer attractive financing rates to vendors in the program.” Still another respondent said his company “has a supply chain finance program to improve DPO and provide vendors with access to cash to attractive rates.” Another respondent that has already initiated a program said it helped increase DPO by about 40%.
Supply chain management and financing is evolving dramatically with old attitudes – pay late, invoice early – fading, giving way to new attitudes, specifically, using the supply chain as a source of inexpensive capital.