Supply Chain Finance Adding Middle Market Companies

All eyes on The Hague: Part One

When it comes to supply chain finance mid-market companies will no longer be left out in the cold.

Late payments still hamper the growth of the European economy as well as the ability of European companies to hire more employees, according to the 2015 European Payment Report. Credit management services company Intrum Justitia gathered data from thousands of companies across Europe to gain insight into the payment behavior and financial health of European businesses.

While findings indicate that one third of European companies see late payments as a threat to their long-term survival and identify the ability to predict cash flows as key to their financial stability, the report launches a call to action for policy makers and businesses to work together to boost the European market by creating a financially sustainable society for corporations. For this to happen, the report concludes, strong incentives for proper payments need to be in place.

Governments are aware of this need and have recently taken actives steps to promote economic growth through supply chain finance, especially for middle market enterprises who are most vulnerable to payment term extensions and tight credit markets. The Netherlands, the US and the UK have launched initiatives to strengthen middle market enterprise relationships by encouraging supplier financing solutions. These initiatives improve the financing options of companies and give them access to the working capital they need for growth.

The UK was one of the first countries to roll out a Supply Chain Finance Initiative in 2012 to help small, local businesses get paid earlier at attractive terms. The European Late Payment Directive was launched in 2013, and in the US the federal government’s QuickPay initiative accelerated over $220 billion in payments to contractors. SupplierPay, a renewal and counterpart of QuickPay launched in 2014, involves commitment from corporations to expedite their payments to their suppliers, allowing those companies to free up more working capital. Some of the largest corporations in the US signed on, including Apple, Lockheed and The Coca Cola Company.

Fast Payments for (almost) all – but what about those who get stuck in the middle?

Supply chain management is complex for all businesses within the supply chain regardless of their size, industry, and location. However, it is especially complicated for middle market corporations finds a recent GrowthCap report.

Smaller businesses are often ‘wedged’ between trading partners in the supply chain, explains the GrowthCap report. The provider of raw materials to the middle market corporations is usually a large company. On the other side the buyer is in most cases an even larger corporation. It is the middle market corporation that typically is a key link in the supply chain and yet has the most difficulty accessing support for working capital. There are several reasons for this, including their size, financial strength and limited track record.

Furthermore, middle market corporations tend to have less experience, credibility and bargaining power in the marketplace compared to larger suppliers and buying organizations. The knock-off effects of middle market corporations suffering from late payments are significant to overall business growth. When they receive their money late, they are forced to pay their own suppliers later; this makes the punishing effect of late payments resonate throughout the supply chain.

Thankfully, there is support for middle market corporations in their quest for minimized working capital exposure through supply chain finance, which works by optimizing cash flow and working capital by allowing buying organizations to lengthen their payment terms to their suppliers, while also providing an alternative option to their suppliers to get paid early. This results in optimized working capital for the buyer and enhanced cash flow for the supplier, while minimizing risk throughout the supply chain.

Despite the opportunities available for improving efficiency and quality of supply chains through working capital financing for middle market corporations, the widespread use has been met with resistance, making the solutions virtually impossible. Until now, that is.

Where there’s a Will There’s a Way: Dutch Government Task Force Delivers Best-in-Class Supply Chain Finance Solutions to SMEs

One of the most prominent examples where the strategic collaboration between policy makers, corporations, and technology providers produces great results by tackling the problem of late payments for middle market enterprises is BetaalMeNu (Pay Me Now), the supplier financing initiative launched by the Dutch government in late 2015

BetaalMeNu seeks to unlock €2.5 billion in liquidity for Dutch SMEs in the next five years. It aims to do this by mobilizing 50% of the top 1,000 corporates to offer their suppliers the opportunity of faster payment, or fast financing, of their invoices. Heineken Nederland, Randstad, Jumbo and FrieslandCampina have already expressed interest to participate.

In the fall of 2015, the Supply Chain Finance Community Forum took one step further and issued a Request for Information (RFI) on behalf of a group of Dutch multinational corporations inviting over 30 bank and non-bank platforms to demonstrate best-in-class methods for applying supply chain finance solutions to Dutch middle market corporations.

Out of over 30 initial expressions of interest, six vendors were shortlisted to present their solution, including PrimeRevenue. Oliver Belin presented the Company’s response and discussed how PrimeRevenue has successfully operated several supply chain finance programs in The Netherlands for over a decade, with its unique platform that provides supplier onboarding and support in Dutch. Furthermore, PrimeRevenue understands the importance of middle market companies and has supported them since the company’s inception in 2003.