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Supply Chain Finance Trends

Unlocking the hidden financial value in a global supply chain isn’t always easy, but the opportunity exists for companies that want to work together for the greater good.

By ·

Global supply chains have more links than ever, and not all of those links are completely in sync when it comes to payments, cash flow and financing. And while the current economic climate is decidedly more amicable than it was during the Great Recession, that doesn’t necessarily mean buyers are cutting checks any faster (or that suppliers are getting paid any quicker). This reality creates bottlenecks in the supply chain, where even one insolvent or financially unhealthy supplier can interrupt its entire flow.

Enter supplier financing (aka supply chain financing), a concept that was popularized in the mid-2000s, when companies in nearly all industries were struggling to stay afloat. The concept is formally defined as a financing method that allows buyers to lengthen their payment terms to their suppliers while also giving those vendors the opportunity to receive payment earlier (that’s where the “financing” portion—typically provided by a bank or other financing company—comes into play). Through this process, the buyer is able to optimize its own working capital while the supplier generates more cash flow to support its own operations.

Jose Aguayo, product manager for cash flow and payment solutions at UPS Capital, credits increasing globalization and the lengthening of the supply chain with driving demand for supplier financing. “Companies now rely on a complex network of suppliers and buyers that stretch across the globe to manufacture, transport, store and distribute their products,” says Aguayo. “Where once the majority of a company’s capital may have been allocated to properties and facilities, it now goes to working capital (e.g. inventory, receivables, etc.).”

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By ·

Global supply chains have more links than ever, and not all of those links are completely in sync when it comes to payments, cash flow and financing. And while the current economic climate is decidedly more amicable than it was during the Great Recession, that doesn’t necessarily mean buyers are cutting checks any faster (or that suppliers are getting paid any quicker). This reality creates bottlenecks in the supply chain, where even one insolvent or financially unhealthy supplier can interrupt its entire flow.

Enter supplier financing (aka supply chain financing), a concept that was popularized in the mid-2000s, when companies in nearly all industries were struggling to stay afloat. The concept is formally defined as a financing method that allows buyers to lengthen their payment terms to their suppliers while also giving those vendors the opportunity to receive payment earlier (that’s where the “financing” portion—typically provided by a bank or other financing company—comes into play). Through this process, the buyer is able to optimize its own working capital while the supplier generates more cash flow to support its own operations.

Jose Aguayo, product manager for cash flow and payment solutions at UPS Capital, credits increasing globalization and the lengthening of the supply chain with driving demand for supplier financing. “Companies now rely on a complex network of suppliers and buyers that stretch across the globe to manufacture, transport, store and distribute their products,” says Aguayo. “Where once the majority of a company’s capital may have been allocated to properties and facilities, it now goes to working capital (e.g. inventory, receivables, etc.).”

 


About the Author

Bridget McCrea, Editor
Bridget McCrea is a Contributing Editor for Logistics Management based in Clearwater, Fla. She has covered the transportation and supply chain space since 1996 and has covered all aspects of the industry for Logistics Management and Supply Chain Management Review. She can be reached at [email protected], or on Twitter @BridgetMcCrea

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Article Topics

Cash Flow · Finance · UPS · All Topics
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