Along Supply Chains, Collaboration A Salve To Help SMB Cash Flow Gap

The coronavirus is changing the way consumers transact, to be sure — but it is also changing how enterprises transact, along B2B supply chains.

Perhaps with positive ripple effects.

The Wall Street Journal reported Thursday (Sept. 10) that at least some large U.S. manufacturers are paying bills early in an effort to keep supply chains intact, and perhaps even gain market share within their respective verticals. Those manufacturers include Lockheed Martin and Micron Technology, the Journal reported.

By way of example, Lockheed accelerated payments of as much as $1.3 billion during the second quarter of 2020, according to reports.

Speeding up payments to suppliers has the beneficial effect of getting cash into the hands of smaller firms that may be relatively more vulnerable to the economic headwinds of the pandemic, as revenues and cash flow hurdles have led them to lay off staff in some cases.

At present and as estimated by the Hackett Group, as cited by the Journal, more than 800 of the largest nonfinancial firms in the U.S. paid suppliers across an average of 60 days —that’s a jump from just under 55 days seen in the year-prior second period — and the jump has been seen in industries such as airlines and retailers that have borne a significant hit from the coronavirus.

PYMNTS’ own research has revealed that late payments are a systemic issue, and have been since well before COVID became a household name. Various estimates peg the “trade finance gap” at more than $1 trillion. As noted within the past several weeks, various supply chain financing initiatives and technologies seek to address the problem.

The concept behind the friction is simple: when it comes to managing corporate cash, companies that owe payments (via accounts payable) want to hold on to those disbursements as long as possible, in order to use capital on hand for other business reasons. The firms (suppliers) owed those same payments want to collect those funds as early as possible so they too, can leverage capital to pay bills, expand, or in this environment, simply survive.

The Wall Street Journal’s report shines a light on cooperation and support that has been emerging across supply chains, and as discussed by J.P. Morgan Global Head of Trade Structured Solutions James Fraser in a recent PYMNTS conversation with Karen Webster. That spirit of collaboration will help foster trade finance innovation.

As Fraser noted, businesses with trade finance programs already in place have largely been able to support the financial health of their supply chains. Enterprises that do not have such  programs are today exploring implementation “aggressively,” he told Webster. Financial institutions have the opportunity to explore offerings in areas such as inventory finance.

Certainly the need is palpable especially among the small and medium-sized businesses (SMBs) that make up “Main Street” USA.  In recent PYMNTS research, 76 percent of companies surveyed said they had cash flow issues tied to the pandemic.  And 18 percent of smaller companies said they were purposely delaying supplier payments to help blunt the impact of those cash flow shortages.