Supplier Financing Gets Specific To Promote Supply Chain Resiliency

Despite continuing discussion and concern around the issues of delayed and late B2B payments, small suppliers continue to struggle with managing cash flow and promoting growth.

The economic and supply chain uncertainties of today’s market have exacerbated this challenge, as more organizations seek to strategically lengthen B2B payment terms to support their own working capital needs.

Late payments and financial crunches have created a significant need for trade financing solutions, and FinTechs continue to deploy a variety of strategies to inject financing into supply chains. Often, this comes in the form of buyer-initiated financing.

Yet Guy Saxelby, chief executive officer and co-founder of Australia-based Earlytrade, recently explored the value of supplier-led financing. Speaking with PYMNTS, he discussed how a focus on the supplier can ease the pains of late B2B payments, and eyed the supplier financing industry’s evolution to help close the trade finance gap.

The Supplier Takes Control

Buyer-initiated financing arrangements can be beneficial to both sides of a B2B equation. A buyer may choose to seek external financing — or, more often, to connect its supplier to a financing solution that allows the buyer more time to settle an invoice without forcing the vendor to delay receiving funds.

But Saxelby noted that this philosophy of financing can fail to look at the bigger picture of what drives financial health throughout the broader supply chain. Other solutions have “failed,” he said, “because of their different value set that might be looking at suppliers as a resource from which value is extracted, rather than a partner from whom you create new value.”

Targeting the supplier can promote sustainability, Saxelby continued, by encouraging a mentality that empowers suppliers to take greater control over their cash flow. But merely connecting a business to capital is not enough to fully drive this concept home.

Listening to business clients is critical to an effective financing solution — and for Earlytrade, that has meant enhancing ancillary capabilities around its funding offering. That also means seamless, deeper integrations into back-office platforms like enterprise resource planning (ERP) solutions. At the broader level, however, it also means reframing the narrative of supplier financing, supplier management and supply chain strategy.

“The most stubborn barrier to improving the allocation of capital across supply chains has been the economics that pits companies against each other on per-unit costs,” said Saxelby. “The result is over-centralization and fragility in supply chains.”

The coronavirus crisis has exposed the pitfalls of this tactic and forced more organizations to embrace supplier diversification for a more resilient supply chain. It has also elevated the understanding of strategic supplier relationships and helped encourage firms to view their vendors as partners, not merely cost centers. This, noted Saxelby, could help the supplier and trade financing ecosystem explore new approaches to the market.

Getting Specific

Another shortcoming of traditional supplier financing strategies has been a one-size-fits-all approach to global trade. According to Saxelby, this fails to recognize the nuances of each business’ unique needs. Larger businesses, especially, “don’t have the time or resources to implement off-the-shelf singular solutions that were designed to solve someone else’s problems,” he said.

With the understanding that successful financing initiatives aren’t just about financing, but about technology, he noted the importance of industry collaborations that can tailor a financing solution to unique back-office requirements.

For example, Saxelby shared exclusively with PYMNTS a new partnership between Earlytrade and Viewpoint, a Trimble company, which enables Earlytrade to integrate directly into Viewpoint’s ERP technology designed specifically for the construction industry. It’s a market that has experienced particularly challenging cash flow issues as a result of B2B payment bottlenecks and delays.

Driving B2B Payments Innovation

Earlytrade recently released data about cash flow in Australia’s and New Zealand’s construction sector, finding a surge in requests for early payments among industry suppliers within the Earlytrade platform. Over a single weekend, the platform saw about five times more requests than what would be considered normal, reflecting the B2B payment and supply chain disruptions related to COVID.

See more: When Late B2B Payments Hit, Smaller Companies Struggle

Creating solutions specific to the industries in which suppliers operate, Saxelby said that financing technologies can expand their impact. “Each industry is different, with unique pain points, areas of friction and ambitions,” he noted.

By collaborating with businesses within these markets, supplier financing tools can have a better grasp on the solutions that will actually solve problems. For some businesses and sectors, Saxelby said, that could be eSignature and invoice processing automation tools. For others, it might be compliance and risk management functionality.

This industry-specific approach can not only contribute to healthier cash flows and more impactful supplier financing initiatives, but can actually strengthen the evolution of B2B payments as a whole. An emphasis on supply chain resiliency and individualized problem-solving can empower vendors to avoid late payment scenarios altogether, rather than scramble to figure out how to deal with such a situation once it arises.

Saxelby noted that suppliers should have the power to negotiate when they get paid, access technology that can work with their existing systems and workflows, and “be rewarded for their contribution to a supply chain’s durability.”

“For B2B payments,” he said, “the biggest opportunity lies in understanding the unique sector and industry challenges that drive a need — and extending these across the breadth of the procurement-to-payment cycle.”