How to Provide Suppliers with Immediate, Meaningful Liquidity Relief
By 4 minute read• Published April 23, 2020 •
Since the global health crisis began to have a financial impact on companies around the world, we have received many calls from executives urgently seeking ways to protect and provide support for suppliers. Specifically, they are looking for ways to mitigate pandemic effects on their suppliers as well as provide relief to those already in distress.
In the current business climate, it’s evident suppliers need access to liquidity. For some industries, like food and beverage, grocery retail and medical device manufacturing, liquidity is needed to meet surges in market demand. For other industries, the immediate future looks bleaker. Automotive, hospitality and travel (and numerous others) are operating in survival mode. They’re hungry for ways to keep their business and their suppliers’ businesses afloat until the worst of the fallout passes.
And what about the future state of business when things start to improve? By some estimates, it could be as soon as 2 to 3 months away. That’s welcome news but not without risk, especially for companies hit hard by the downturn now. Supply chains will be under pressure to get back to “normal” quickly as business comes back online. Suppliers will need to do more than simply survive – they’ll need to be strong and resilient enough to ramp up from zero to full steam with little liquidity in reserves.
The economic stimulus packages being brought to market by central banks will be helpful, but will only solve some of the problem for qualified companies. There is concern the relief passed through banks to businesses in need won’t be received quickly enough or offer enough fiscal support. The bottom line is many suppliers – of all sizes – need cash now. Deloitte’s perspectives echo this. The firm recently stated traditional commercial lending options may not suffice for many businesses because of several reasons, including banks’ credit approval timescales could be too slow to deliver the necessary funding in time (Source: Addressing the liquidity impact of Covid-19, March 2020).
Why Early Payment Could Be a Lifeline for Some Suppliers
The most effective option for supporting suppliers during this economic crisis is by offering early payment via supply chain finance. This will help suppliers immediately inject much-needed liquidity into their businesses, helping them survive and navigate uncertainty or, in some cases, meet atypical spikes in demand. The immediacy and availability of this liquidity would create a trickle-down effect even deeper into the supply chain. By providing suppliers with cash, they can turn around and pay their own suppliers.
According to our data, supplier demand for early payment options is strong and growing. In March, PrimeRevenue accelerated a record $10 billion in early payments to suppliers, a 34% increase from February. Suppliers also traded 93% of available invoices for early payment, well above the typical rates ranging between 70% and 80%. And we are gearing up to onboard thousands of new suppliers onto PrimeRevenue-led supply chain finance programs in the coming weeks.
One supplier that’s using supply chain finance to navigate the impact of COVID-19 is a UK-based provider of recruitment services for the transport and logistics industry. The pandemic has caused a surge in demand for drivers and warehouse workers in industries like grocery retail and pharma. Faster cash flow has helped the company ramp up to meet this demand while continuing to meet permanent staff and overhead payment obligations.
PrimeRevenue is committed to helping suppliers during times of disruption. We know early payment can be a lifeline to companies in times of unprecedented demand or distress. We also understand that companies are only as strong as the health of their suppliers – whether it’s meeting surges in demand today or ramping up to business-as-usual levels of productivity post-pandemic. It’s a commitment we don’t take lightly. We’re grateful to be in a business that can have a significant impact on working capital in a time when it’s key to the global economy’s ability to pull through this crisis successfully.