Supply chain finance can be a valuable tool for both corporate buyer and supplier, particularly amid cash flow crunches that can quickly lead to delayed and late B2B payments. Yet the financing tool has also come into the spotlight in recent days, and not necessarily in a positive way.
The U.S. Securities and Exchange Commission recently announced an examination into the supply chain financing programs in use at major conglomerates including Boeing and Coca-Cola. According to Wall Street Journal reports, the inquiry is exploring whether supply chain financing may hide risks from investors as it’s often recorded as accounts payable, and not necessarily specified as a form of short-term borrowing.
Other critics of the tool argue supply chain financing programs can be used to abuse suppliers and force discounts on their invoices in exchange for getting paid on time.
While it’s a concerning issue, said the Global Supply Chain Finance Forum in a statement last week, it’s not one that is widespread. Rather, these programs can “help buyers and therefore assure the health of the overall supply chain, but also provide prompt access to funds for suppliers on an affordable basis, addressing the systemic SME [small and medium-sized enterprise] cashflow challenge.”
While supply chain financing is a widespread tool, it hasn’t entirely stomped out the late payments problem. In this week’s B2B Data Digest, PYMNTS rounds up the latest numbers behind delayed supplier payments causing cash flow bottlenecks down the supply chain.
43 percent of the total value of invoices is affected by late payments, according to an analysis of B2B sales across North America conducted by credit risk analytics company Atradius. The figure was cited in a new report by Frost Sullivan, which also noted this figure is up significantly from 25 percent only one year ago. Additionally, the value of invoices that are significantly overdue — that is, more than 90 days past their due-date — has doubled to 13 percent year-over-year.
According to Atradius, this has negative ramifications for the supply chain overall.
“Financial analysis of today’s business ecosystem shows clearly that companies are sacrificing investment in their own growth and instead using their capital to make up for cash flow that is not coming in on time from customers — or not coming in at all,” the company said in its announcement.
62 percent of businesses are interested in participating in an early payment discount program, recent data from Taulia found, noting that companies are seeking to optimize cash flow as a result of the coronavirus pandemic. The survey of more than 9,000 respondents found 43 percent report an increase in receiving late payments, with most also finding an overall decline in business demand.
“As a result of COVID-19, we have seen a tremendous increase in early payment requests and demand for solutions to help manage financial processes electronically,” said Taulia CEO Cedric Bru in a statement.
85 bankruptcies across the U.S.’s retail industry have hit the market since 2015, according to CB Insights data, cited in a new report by WWD. The insolvencies aren’t just bad for the retailers themselves: analysts noted that their vendors are suffering as they are owed millions of dollars, and likely never to receive payment. WWD pointed to Ascena Retail Holdings, whose total estimated liabilities hit between $1 billion and $10 billion.
For suppliers, there is an opportunity to overcome these hurdles, however. Deloitte Financial Advisory Services managing director John Doyle told the publication that “vendors and providers need to manage service and relationships while placing a notable focus on their financial health and debt levels,” pointing to strategies like “matching value received to value shipped, agreements on payables and carefully managing aging and delinquent receivables” as key to survival.
93 percent of FM Conway’s invoices were paid within 60 days between March and May 2020, according to Construction Enquirer reports, while 95 percent were paid within 60 days during the month of June. The B2B payment practices have led the construction conglomerate to be reinstated to the U.K.’s Prompt Payment Code, a voluntary code of conduct to pay suppliers in a timely fashion. Another industry player, Kier Integrated Services, was also reinstated after reporting that 90 percent of its invoices were paid within 60 days as a result of improvements to its procurement workflows.