I have been blogging about supply chain finance (SCF) and the importance of managing working capital efficiently. As we know, a Buyer may extend accounts payable payment terms, strengthen its supplier relationships and reduce its cost of capital. Suppliers who utilize SCF accelerate their cash flow early and improve their working capital as well. Both the Buyer and the Supplier can use their cash flow to grow, to invest and to increase operational efficiency.
As I have spread the SCF concept, I met Burt. Burt is a Buyer responsible for his company’s supply chain finance. He is under pressure to have as much working capital available so that production can use the funds to order more parts and the research department can use the funds for investment in their new innovative technology. To accommodate the cash flow need elsewhere, Burt the Buyer, is extending his accounts payable terms from 30 days to 60 days.
Unfortunately, now Burt has to listen to the accounts payable department’s complaints because they are inundated with calls from Sofia, the Supplier. Sofia’s company sells a vital production part for Burt’s company’s product. Sofia used all her company cash flow to produce the part and sell it to Burt’s company. Now her payroll is due. Sofia is also receiving orders from other Buyers who need her product. She needs Burt to pay her invoices. What’s the problem? Sofia provided the product on time and defect-free! She has now received a notice that Burt will not be paying in 30 days. Burt has notified her that new invoice terms are 60 days! What’s Sofia going to do? She calls Burt’s accounts payable department!
Burt is in his office trying to find a solution. He sees a blog from FSW Trade Finance (FTF) covering Supply Chain Finance. After speaking with Melissa, Burt realizes this SCF program will help both his company and Sofia manage their respective working capital efficiently and strengthen their relationship. Burt needs Sofia because he buys one of the most important parts from her company for his production department.
Burt decides to implement FTF’s QuickPay program. Burt can now extend his invoice terms to 60 days and allow Sofia to request her invoice payments early. Burt and Sofia are now excited about what they can do with their access to the cash flow without the burden and stress placed on the other party.
As Burt realized, FTF’s QuickPay program is a great solution to adopt supply chain finance unlocking the cash flow that is bottled up in the supply chain.