KPMG is ramping up its efforts to ease the friction of B2B payments. The advisory firm has just inked a new deal with Taulia in an effort to link existing corporate buying clients with supplier financing programs, a deal announced in conjunction with the release of KPMG research that found such financing programs are pretty few and far between.
In a statement, KPMG Supply Chain and Procurement Practice Leader in the Americas Samir Khushalani said the research shows “the disconnect that exists in today’s financial supply chains.” Analysis revealed that less than one-third of buy-side organizations are offering their suppliers a financing program, while less than half reported tracking the supplier relationship within their companies’ procurement functions.
In other words, corporate buyers aren’t helping their suppliers manage their cash flow. PYMNTS spoke with Khushalani, along with KPMG Supply Chain and Procurement in the Americas Operations Advisory Director Brian Murphy, to discuss why buy-side firms should even care about helping their suppliers manage their finances.
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According to Khushalani, so few corporate buyers offer their suppliers a financing program simply because they don’t know they should. “From our perspective, it is a lack of awareness around the ability to do something like this,” he said. “Many of them aren’t even aware of some of the cash flow issues that their small and medium suppliers are facing or the cash flow implications that some of their decisions may have."
Khushalani added that he’s noticed some buying organizations may alter their payment behaviors without considering the consequences.
"We have a lot of clients extend their payment terms very arbitrarily or paying suppliers late,” he said, “and they don’t necessarily think of what the knock-on impact is for the suppliers — especially smaller ones."
Murphy, on the other hand, said that they may be aware of supplier financing programs but are not aware of the technological strides that such programs have made in recent times.
"Something that used to be a push model onto suppliers, it felt like you’re beating up suppliers, and suppliers didn’t like it,” Murphy explained of legacy supplier financing programs. “It soured the relationship. But it’s transformed now, and technology enabled it to be a pull model, meaning the suppliers are actually asking to be paid early."
“The lack of awareness of that shift that has occurred, due to the improvement in technology, is really why there hasn’t been the adoption we would like to see,” he added.
Plus, with businesses expanding their international reach, said Khushalani, the supply chain is now more complex — and risky — than ever, making it more difficult for buyers and suppliers to manage their relationships with each other across borders.
But the need for sophisticated financing programs being offered by buyers is crucial in today’s economic climate, both Khushalani and Murphy agreed. And the benefits of such programs aren’t one-sided.
The ongoing conversation across multiple jurisdictions around the globe about late payments makes it clear why supplier financing programs would be key for a supplier. Murphy pointed to the oil and gas industry, which is struggling with a drop in fuel prices in the current market climate. “A lot of small and medium-sized businesses are hurting right now, and having cheap access to cash to make things like payroll or to pay their own suppliers can be the difference between keeping a company in business or not,” he said.
But the executives noted that corporate buyers need to start thinking of their suppliers in a new light.
“Not all companies and organizations view suppliers as business partners,” explained Khushalani, “and, consequently, as someone in which they need to invest.”
He also pointed to the oil and gas sector as one that could benefit greatly from greater implementation of supplier financing programs. “In times of supply constraints, if you have strong supplier relationships, that effectively gives you prioritized access to equipment and supplies that you wouldn’t have otherwise,” Khushalani said.
Murphy agreed, adding that the financial success of a supplier means the success of a buyer. “You want those suppliers to be solvent and capable of ramping up along with you,” he said.
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Their consensus is clear: Supplier financing programs aren’t just for the benefit of the supplier. The executives said that through the collaboration with Taulia, KPMG will begin broadening the conversations happening with buy-side clients already using KPMG’s purchase-to-pay and other B2B services to discuss implementing a Taulia-fueled supplier financing initiative.
It’s a tool, Murphy said, that can strengthen B2B relationships across industries; he pointed to the consumer product goods, power and utilities, industrial manufacturing, automotive, health care and aerospace sectors that are witnessing an uptick in the use of supplier financing programs, to name a few.
And that popularity, the executives said, can be attributed to the fact that companies are starting to realize that, in many cases, a healthy supplier means a healthy buyer.
"Best-in-class companies are willing to give more favorable payment terms to their suppliers in return for better performance and collaboration,” Khushalani said. “They would be willing to pay a supplier sooner because it helps them ultimately get better performance and better discounts."