I guess we could start this blog about referring to ‘new normal’, the ‘great reset’ or even the lasting damage of a once-in-a-lifetime pandemic no one saw coming and no one predicted. But that is not the point of this post.
What I want to dwell on is that many of the old certainties of pre-pandemic business life have continued no matter what. People make things, sell things through the value chain, on and upward to the end consumer. And central to this is the need to fund that process throughout each and every step. I am not talking about consumer credit here, but the day-to-day interactions of businesses throughout the supply chain and how funds are realised and released to ensure the smooth transfer of products from manufacturer to distributor to retailer and beyond.
In recent weeks the spotlight has fallen on a much overlooked and undervalued form of supplier finance.
Instead of going into the nuts and bolts of how it works I think it is only fair to look at how this 30-year-old finance tool helps from a suppliers’ perspective.
As a supplier, image for one moment you are going to sell goods to a huge retail buyer and then you see you have a 30-day payment term clause in place. Fine you say, I will have delivered these good to the quality expected, and the buyer has said they will pay on the due date.
But then the reality hits. You need to finance your raw material and production costs, you need to max out your own credit terms with your suppliers, try and reduce your inventory and accelerate your cash flows from other buyers, and all of this before you have even covered the costs of your existing capital and borrowings.
The solution Supplier Finance, which is also known as reverse factoring, payables finance or supply chain finance. In other words, it is the financing of an invoice once the buyer has accepted to pay. This is not new. As I have already referenced this is a financial tool that has stood the test of time.