Samsung Electronics is setting up a new fund to help suppliers with cash flow.
Reports Friday (May 26) said the South Korean company is setting up a fund with various banks worth $447.5 million that will go toward supplier financing in an effort to ease cash flow struggles down its supplier chain.
The fund will launch in conjunction with a program that will see Samsung Electronics’ first-tier suppliers able to lend cash to second-tier suppliers within a month when orders through the supply chain are submitted.
Hana Bank, Shinhan Bank and KP Koomin Bank will provide the supplier financing, reports said. While the company has facilitated financing to its first-tier suppliers for more than a decade, Samsung’s supply chain has typically relied on promissory notes, reports added, that lead to a backup in payments to second-tier suppliers and create cash management struggles for the smaller companies.
The fund will be managed by Samsung Electronics for the next few years in an effort to settle outstanding invoices within 30 days for second-tier suppliers. Should suppliers request it, Samsung said it would consider managing the fund beyond its May 2020 expiration. An unnamed source told reporters that use of the fund won’t be mandatory but highly encouraged by Samsung.