As Trade Volumes Increase, Survey Indicates U.S. Suppliers Are Cautiously Optimistic
At first glance, the business environment for U.S. trade portends good things for the rest of the world. Despite Covid-19 infection rates that soared over the last year, gritty supply chains (with the help of a robust vaccination effort) have seemingly hung on to find the light at the end of the tunnel. Surely, this is the road to full economic recovery.
After all, B2B trade appears to be headed in the right direction. Namely, up.
A pervasively, yet perhaps cautiously, optimistic outlook was shared by the majority of the 140+ owners and managers of B2B small-to-medium-sized businesses (SMBs) who responded to our survey. More than 26 percent described themselves as “significantly more optimistic” about their business’ prospects in the next quarter than in the previous. Another 34 percent were more tempered in their enthusiasm, calling themselves “cautiously optimistic.” Only 11 percent categorized themselves as either “somewhat or significantly more pessimistic.”
This optimism is likely a reflection of business performance over the last quarter. Forty-three percent of respondents said business improved from Q4 2020 while another 46 percent said it remained the same. Just 11 percent said that business in Q1 2021 actually worsened.
The dark cloud blocking these rays of recovery sunshine is the SMBs’ perceived ability to meet demand. Three out of ten respondents said they either worried about their ability to meet rising demand or found their reduced capacity to meet existing demand problematic.
Can they meet demand?
Most businesses feel demand is not only increasing but also that they can meet it. Yet a stubborn 30 percent (in purple) are not so sure.
Following the Money
One of the red flags signaling a speedy recovery could plateau is evidenced by recent trends in trade volume across the Tradeshift platform. We’ve noticed a substantial lag between order and invoice data, perhaps leading to what economists call the “bullwhip effect.” Essentially, as demand ripples through the supply chain, cash-strapped suppliers struggle to keep pace upstream.
Almost 32 percent of suppliers indicated that they’ve had less liquidity in the last six months than they had in the previous six. Nearly three in ten said they have less than 30 days worth of cash on hand, and more than a quarter said most of their customers don’t pay them for at least 60 days. Keeping a business churning — and scaling — without sufficient working capital may be an incline too steep for many suppliers, unless additional funding sources can be secured. Ultimately, the cash position of these sellers must change if they’re to survive the recovery.
How Late Is Too Late?
Cash flow pressure has been universally felt across the supply chain. In an effort to boost liquidity during the financial rough patches of the last year, buyers held onto their cash. Some of those delayed payment practices may be hard to break for buyers in still-faltering sectors. SMB respondents indicated that an average of 35 percent of their customers pay them later than the agreed-upon terms. Nearly half of all respondents said that late payments are a problem. Perhaps more concerning: Roughly 43 percent said late payments were more of a problem in Q1 2021 than they were in the previous quarter. Not coincidentally, about five in 10 SMB managers and owners say they have trouble predicting their companies’ cash flow.
It's difficult to predict cash flow
Nearly half of our respondents agreed with this statement. Without predictability in payment cycles, suppliers are left to wonder how they will fund business.
Through the Fiery Furnace
If the state of SMB liquidity seems a bit alarming, most aren’t ready to hit the panic button quite yet. In fact, on pretty much all of the “softer” customer relationship indicators we asked business owners and managers to weigh in on — ranging from customer transparency to willingness to communicate and collaborate — the overwhelming majority of SMBs said customers have performed admirably.
For many, it seems the pandemic may have been the fiery furnace that forged an even stronger partnership. Nearly 39 percent reported that their company’s customer relationships grew stronger while only about 8 percent said their relationships soured.
Now that’s an outcome suppliers around the world are banking on.
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