Join Morgan Stanley at Ariba LIVE in Berlin to hear how they are putting their cash to work, earning high returns without increasing risk. By strategically leveraging dynamic discounting across their global supply chain, they are addressing the critical challenges both large companies and their suppliers are facing in today’s challenging credit environment.
In an effort to shore up their balance sheets, large companies have been stockpiling cash like never before. The problem is that the return on short term, “risk free” investments continues to hit record lows. Siemens, for example, invested billions of Euros of cash at the ECB at approximately 1% yield. With inflation low but above those levels, companies are losing money on their cash.
At the same time, many smaller companies are struggling to obtain credit due to the tight banking environment. A global challenge, it is most acute in Europe where concerns about the Euro and sovereign debt are driving particularly risk averse behavior. The net impact is higher borrowing costs and increased risk of bankruptcy for many otherwise viable firms.
So what are smart companies doing?
Enter early payment discounts, where large buying organizations pay their suppliers early in return for a discount, typically in the 1-2% range. The APR on such discounts is in the upper teens to upper twenty percent levels. Buyers receive a significantly higher, risk free return on their cash and suppliers have the flexibility to be paid when they need cash, at rates below what they can often obtain otherwise.
A true win-win. Hardly a new concept, the problem has been that tracking contracted discounts through invoicing, or negotiating dynamic discounts post contract was too manual and painful a process. And Global Supply chains can add regulatory and accounting complications.
But, as Morgan Stanley discovered, business networks and cloud-based technology now make the process simple and efficient..