Supply Chain Finance Shines as Holiday Season Approaches

By Gavin Cicchinelli • Published September 16, 2022 • 5 minute read

As the holiday season approaches, we’re seeing an increase in supplier invoices being uploaded to the PrimeRevenue Platform as well as a jump in invoices being submitted for early payment. For the most part, this is par for the course – the rush to boost inventory to meet an increase in consumer demand typically precipitates a need for faster payment cycles. But there is something different this year.

For the first time since 2020, supply chains are feeling some relief. The RSM US Supply Chain Index, which measures supply chain performance indicators like logistics and manufacturing output (and everything in between), is back to normal for the first time since the pandemic started. The time it takes to ship goods is also looking markedly better. The amount of time it takes an item to make its way from Asia to North America is at the lowest level in over a year.

But, while goods may be moving across the supply chain more swiftly, suppliers continue to feel the financial pinch of “The 3 Ls” – logistics, labor and liquidity.

  • Logistics: While the cost of shipping raw materials has declined significantly from this time last year, parcel shipping costs are on the rise. The USPS is raising rates for the peak holiday season again this year with surge pricing beginning on Oct. 2 and running through Jan. 22, 2023 (nearly a month longer than last year). UPS just announced its own peak/demand surcharges which will have a material cost impact on large shippers’ logistics budgets. Starting Oct. 30 through Jan. 14, 2023, many customers will see a surcharge applied to UPS Air Residential, Ground Residential and SurePost shipments. FedEx has also announced similar increases.
  • Labor: It’s going to be another tough holiday season for manufacturers, retailers and suppliers as a global labor shortage continues. Despite economic uncertainty, inflation and worker shortages are still applying upward pressure on labor costs.
  • Liquidity: The cost of liquidity is rising as central banks hike interest rates in an attempt to tame inflation. With commercial lending options substantially more expensive, many buyers and suppliers are looking for alternative sources of funding that are less costly and have less impact on their balance sheets.

‘Tis the Season for Buyers and Suppliers to Leverage Supply Chain Finance

As the holiday season approaches, operational and supply chain costs will increase for retailers and suppliers as demand surges. Cash flow slowdowns are common during this period as companies frontload output, but there are ways to minimize the impact of them on financial agility – including supplier finance programs. Increasingly, buyers and suppliers are turning to supply chain finance to increase free cash flow. Unlocking this low-cost liquidity allows them to counter rising logistics, labor and liquidity costs as well as ensure they’re able to align their productivity with fluctuations in demand.

There is also the prospect of a further weakening of the economic climate as 2022 comes to a close. According to the Conference Board’s Leading Economic Index, the U.S. economy is expected to fall into a short (albeit mild) recession in early 2023. The outlook in Europe doesn’t fare any better (although the near-term outlook in Asia does).

The pressure to be financially agile during the holiday season while simultaneously shoring up financial stability in preparation for a recession is a lot for financial leaders to shoulder. Supply chain finance offers a reprieve across the supply chain – it unlocks working capital for buyers while improving cash flow for suppliers – all at a time when many need it most.