Unlocking cash flow for your supply chain and your business

March 25, 2020 Don Frazier

Right now there is an opportunity to unlock a $1.5 trillion pool of capital that’s sitting in front of us. This is a resource that could prove invaluable as enterprises and their sellers look to secure the cash flow needed to manage the turbulence created by this current crisis and ensure business continuity.

The working capital dilemma

COVID-19 has hit businesses very fast, and very hard. Over the past few weeks we’ve seen firsthand the supply chain challenges it’s created. Now we’re starting to see the impact on cash flow. And as enterprises look to access the cash flow needed to ride out this period of disruption, they’re assessing all levers they can pull to do this, including delaying payments to suppliers. This will only have the consequence of weakening their supply chains. 

This could spell bad news for both the corporate buyers and the millions of small and medium sized businesses that sit at the heart of their supply chains. These SME already on a knife’s edge dealing with cash flow concerns. And this challenge will only intensify if their customers need to delay payments to preserve their own working capital. It ends up being a tug of war with dire consequences on both sides. 

It need not be this way, however. There’s plenty of capital out to support every business. Take the $1.5 trillion pool that’s doing nothing in unpaid invoices, for example. That’s an enormous resource that, if unlocked, will go a long way to supporting the efforts of banks and central banks to ease the pressure on businesses across the supply chain. 

Why aren’t businesses tapping these funds immediately? They can’t—the digital disconnect that exists between buyers and sellers makes most of what happens across the supply chain hazy at best. This lack of transparency creates many onboarding hurdles, risk management challenges, and other complexities that limits a funders’ appetite to onboard and finance anything beyond the transactions between the top few suppliers in the chain. 

And, even when the funding is available, buyers often cannot get supplier invoices approved in time for it to make a difference. 

Consider supply chain finance (SCF). The latest Working Capital Survey from PwC finds that only 50 percent of these programs reach just 25 sellers on average. So while legacy SCF is a powerful solution for buyers and a fraction of their sellers, it stops well short of solving the entire problem, and it leaves most sellers without access to this low-cost form of funding. 

It’s also worth mentioning how accounting firms are trending in the direction of treating this style of finance as debt to a buyer. Is this a risk that buyers want to take, especially now? 

Unlocking $1.5 trillion in trapped capital

Using technology to digitally connect buyers and sellers can make supplier finance simple and readily available by overcoming many of the challenges that legacy forms of supplier finance has today. That’s because when buyers and sellers are connected digitally there is a vast amount of data that becomes accessible. With this data the supply chain and the relationships that bind it together become more transparent making it easier to analyse the risk associated with funding transactions across the supply chain. 

With a clearer view of risk, funders can inject liquidity into all supply chain transactions even before approval of an invoice, and at much lower rates than ever before. And they can do so without promissory notes, excess buyer liquidity, and all of the other slings and arrows of standard buyer facilitated early receivables payments programs. 

This isn’t something for the future, it’s happening right now. Businesses on the Tradeshift network are already using data-driven finance to take advantage of accelerated payment opportunities. As a result, buyers can free up their working capital without using their own liquidity or negatively impacting the supply chain. While sellers on the network are getting paid in as little as two-days, giving them a much-needed source of frictionless, low-cost and dependable funding that’s available whenever they need it. 

Maintaining forward momentum 

Times are challenging right now for businesses, but in times of stress it’s important to redouble effort to maintain forward momentum. 

There is a $1.5 trillion dollar pool of capital waiting to be unlocked that could provide companies big and small with another tool in their arsenal to get through this tough period. Find out how Tradeshift Cash allows you to do this.


About the Author

Don Frazier

Don Frazier is Tradeshift's VP of Seller Success. He's a leading expert in supplier financing, working with businesses of all sizes to help them optimize their cash flow and working capital using innovative data-driven financing solutions.

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