There is excitement these days looking for a fast economic recovery with cruise lines that are repositioning their ships in our ports. Suppliers all over the world will start re-hiring and planning to receive final orders to provision cruise ships for any kind of commodity.
For the cruise industry, buyers purchasing goods all over the world could be a major problem getting products from past reliable suppliers. Today’s financial situation, after more than one year under this pandemic, may have substantially reduced the seller’s capital assets. That could not guarantee sufficient funds for their new startup operation to secure large increment of new levels of orders.
In addition, suppliers will have to deal with high failure approval rates on their applications for bank lines of credit. American banks approved less than 50% of SME loan applications in 2020/2021, according to a survey from major credit financial institutions.
The result of the above research indicates that more than 50% of the suppliers in need of cash will not get any line of credit approved and will not be able to supply the incoming demand of new orders. This, in my opinion, will be one of the major issues in restarting the economy, that has always been sustained in the USA and around the world by SME companies. In the USA, 80% of the domestic GDP is controlled by them.
Traditionally, for any business organization to guarantee the working capital for their operations, it is to delay the payment by extending credit terms 60/90/120 days in a vicious cycle: buyer to seller and seller to their suppliers, with the result to hold billion dollars yearly in the global supply chain.
Business organizations need their purchasing department to be an integral part of the company’s strategic finance goals, to help improve working capital assets, reduce cash to cash cycle via new solutions, and not just do the scholar job of maintaining their cost under the department’s budget allocation.
Today they can. Under the SUPPLY CHAIN FINANCE (SCF) program buyers can extend credit terms up to 120 days by offering to accelerate invoice payments to the seller at low discount points via 3rd party (founder) based on buyer credit rating. A dedicated online platform will provide full transaction visibility to all parties involved.
This is a buyer-centric solution, at no cost for the buyer ( average $500K up to $10 M unsecured revolving credit per 120 days max ). Buyer instead of the seller will pay the invoice to the 3rd party founder in accordance with his/her extended PO credit terms. Seller will receive early payment (cash) and their invoice regardless of their company’s financial health. This is call reverse factoring. It is not factoring receivable account that it is not a buyer-centric operation and it may cause frictions between the seller and his/her customer ( buyer)
Supply Chain Finance is a win-win solution for buyers and sellers, but it requires complete re-design of the business relationship between them, away from the old school, where buyers were focusing on cutting costs and pinning down suppliers without offering anything in return.
Many orders could be delayed, causing the seller financial stress on purchasing the raw materials or any other components to do the final product. The result of delays in delivery could be a major impact on the buyer and seriously damage the business relationship with his/her customer.
Bridge capital financing solutions provides accelerated payments for small businesses will be the key to success for the new start-up economy.
It is also the time for a logistics provider to re-design their selling solutions to include as an option Supply Chain Finance (reverse factoring, factoring, PO finance, Inventory finance) in partnership with a reliable finance trade organization to their customers. This full package will be a breakthrough in many new future deals.