CFO Magazine ran an interesting article on April 1 (and no, it was not an April fools article!) showing how companies are increasingly looking to their receivables as sources of liquidity and credit when access to traditional unsecured lines of credit is restricted. The article (Link here: http://www.cfo.com/article.cfm/14485320?f=singlepage) tells the story of former Anheuser-Busch suppliers who found their payment terms suddenly and agressively extended when InBev acquired A-B
"When Belgium-based InBev bought U.S. beer king Anheuser-Busch in July 2008, payment flows to its suppliers dried up. One such supplier, Performance Cos., which prints point-of-purchase displays, received a notice from the beermaker saying that invoices would now be paid on a net-120 basis."
Unfortunately for many suppliers, this type of terms extension (often unilateral and sudden) has become somewhat commonplace over the past 2 years stretching supplier's cash flow capabilities to the limit and adding a lot of liquidity risk into supply chains. As CFO Magazine puts it, "That kind of hit to cash flow can cripple companies...".
Buyers certainly have the option of utilizing a Supply Chain Finance program to provide access to early payment to their top suppliers, but these programs are still a leading/best practice and have not yet become commonplace. Additionally, SCF solutions are typically targeted at the top-tier of a company's spend, representing a relatively small number of suppliers. That leaves a lot of suppliers in the situation where their cash flow is taking a hit, right at a time when they are preparing for recovery and growth.
What are these suppliers to do? According to the article, "Stretched by customers, rejected by banks, and pressured to grow sales again, finance chiefs are finding receivables-based financing a stable source of fast funds."
Recognizing the need to inject liquidity into supply chains, Ariba has built our Working Capital Solution suite to provide a variety of tools for buyers and suppliers to moderate such cash flow impact and allow suppliers to access the value of their receivables for early payment. Check out these links to learn more:
I am also curious to hear from you whether or not you are seeing the same situation in your industries and how you are taking on the cash flow challenges in the current economic and credit environment. Have you had your terms extended by your customers? Have you extended terms to your suppliers? Are you utilizing your receivables to access credit/liquidity?
Sr. Product Mgr., Ariba Working Capital Management Solutions