As many parts of the world ease social and business restrictions, business leaders find themselves in a grey area. While the economic impacts of the global health crisis are certainly unprecedented, the idea of “bouncing back” after economic hardship isn’t. It’s understandable to be eager to return to some semblance of normalcy, but leaders must also be strategic in their action plans to navigate the current situation.
Stabilizing today’s needs without increasing tomorrow’s risks is a delicate balancing act that can be the ultimate challenge for treasurers and CFOs. The best thing business leaders can do is proactively prepare their cash flow strategy and strengthen their supply chains to recover from today’s challenges and prepare for those to come.
The demand for cash isn’t limited to industries hit hardest by the pandemic. In fact, much of it will be (and already is) driven by industries that are experiencing a surge in business. Production acceleration, new hires and infrastructure upgrades are a few examples of initiatives that need immediate funding. This is particularly true for smaller brands that have been blindsided by sudden, sharp increases in demand. As pointed out in this Forbes article, CleanWell, a maker of hand sanitizers and disinfectants, experienced a 400% increase in sales as the pandemic took hold. For these companies, revenue may be up, but it’s nearly impossible to meet demand with shortages in raw materials and production capacity.
At the beginning of the crisis, companies tried to protect the short-term health of the business by hoarding cash. Now, if what we’re currently seeing in China is any indication, companies are on the road to getting back to business – perhaps faster than expected. With recovery comes record-level demand for liquidity as companies need to balance current-state and future-state business requirements. The problem is the money businesses hoarded when the crisis began is running out, leaving many companies in a scramble to source liquidity that will sustain them through the recovery period and beyond.
Supply chain finance has an important role to play both in the current economic environment and the post-pandemic business climate. Our data has already shown how supply chain finance is satiating companies’ hunger for cash. From March to May, PrimeRevenue accelerated nearly $30 billion in early payments as the pandemic continued to rock the global economy.
Now Is the Time to Invest in Supply Chain Finance
The benefits supply chain finance provide are crucial to restoring financial agility and resiliency. It allows companies (and their suppliers) to overcome their most immediate liquidity challenges without sacrificing their ability to quickly get back to business as usual when the time comes. As we transition into a post-pandemic environment, supply chain finance will continue to provide companies a source of cash to fuel the business during recovery.
Perhaps most importantly, this is when companies need to start thinking about what will happen to their business on the other side of the pandemic. Supply chain finance provides both a sustainable “safety net” for companies to lean on when we reach the next inevitable financial roadblock as well as a path for meaningful innovation and business improvement in the meantime. It also stabilizes the supply chain and supports suppliers to ensure business continuity in any economic climate.
For companies that don’t currently use supply chain finance, now is the time to get a program up and running. But not just any supply chain finance program will do. Especially as banks are re-evaluating credit spreads and markets, it’s critical to set your program up for success with a multi-funder model that is able to seamlessly pivot regardless of any single bank’s actions.
Market downturns and resultant upturns have a way of upending competitive landscapes and creating new leaders and opportunities. Companies that take control of cash flow and put proactive measures in place to secure the supply chain will be the ones that come out of this crisis stronger than their peers – and more prepared for anything that lies ahead.