The Search for Liquidity: Supply Chain Finance to the Rescue?

When the pandemic struck last year, companies across the globe were forced to confront dramatic changes in consumer demand, challenges in logistical supply chains and looming financial jeopardy.

In a report released in July 2020, credit insurer Euler Hermes predicted that Covid-19 would see firms’ liquidity needs leap to a record high of US$8tn globally, up by US$140bn, due to payment delays and an inventories surge.

In some parts of the world, the damage to businesses was, to a certain extent, lessened by the swift roll-out of sizeable support packages from governments and public finance institutions.

But industry figures say that companies looking for short-term funding from the private sector also saw a rise in credit costs, as growing numbers of firms began to draw on revolving credit facilities or put in requests for loans.

Global Trade Review (GTR) asked Brian Medley, PrimeRevenue’s Global Head of Sales, to weigh in regarding how companies around the world have increasingly turned to supply chain finance to stave off liquidity issues and keep trade moving:

“We saw record expansion in our existing client base last year, as buyers wanted to grow supply chain finance to their suppliers already in the program, or to a broader number of suppliers – particularly small and medium ones, who felt the effects of the pandemic acutely,” Medley said. “We brought in thousands of new suppliers across 50 countries, representing billions of dollars added into the platform.”

Vilhelm Otterheim, a sourcing manager for SCF at Swedish grocery, retail and pharmaceutical company ICA Group, says the product became an increasingly important tool for businesses such as his in the throes of the crisis.

ICA Group’s core business is in food across Sweden, where – with approximately 36% of the grocery retail market share – it serves thousands of independent store owners by sourcing and buying goods both locally and globally. The company also runs a grocery subsidiary in Estonia, Lithuania and Latvia.

Otterheim says that the fresh food and confectionary suppliers the company sources from – “everything from candy to fresh fish” – were struggling in the initial months of the pandemic due to restaurants closing down, or because of restrictions hindering their ability to export.

As a result, ICA grew its participation on the PrimeRevenue platform and saw a rise in its use of supply chain finance last year. Having made a significant effort to reach out to suppliers, he notes that several large and small companies joined the SCF program.

“Quite a lot of our supplier base, especially in the beginning, contacted us to say they are in real stress… Apart from ICA trying to buy more goods from them, we introduced them to supply chain finance to boost their cash flow,” Otterheim adds.

Read the rest of this article on the GTR website.