Ravi Vishvanathan, CFO, PayMate (@ravivishi)
When it comes to survival, oxygen is essential whereas, for small businesses cashflow becomes their lifeline. However, this lifeline usually gets disrupted due to longer credit periods enjoyed by large enterprises (buyers) that lock their supplier payments leading them to a shortage of cashflow. This lack of liquidity hinders their growth and making it tough for them to scale up at the right time.
Before the onset of the pandemic, small businesses or suppliers would get their invoices paid in 60–90 days. This was already a high-pressure environment to begin with. However, this situation worsened during the pandemic lockdown, resulting in their invoices being paid after 150 days or not at all. As many as 66% of the total value of B2B invoices are overdue (far above the 39% recorded last year and this compares to the 52% average for the region) and long-term overdue invoices (still outstanding after 90 days past due, with a high likelihood of turning into bad debts) amount to 29% of the total value of B2B invoices issued by respondents (regional average: 15%).
So, how can cashflow deprived businesses get access to working capital to survive?
Rapid adoption of digital tools, robust remote working solutions & restructuring the way in which follow-ups are made for timely or early payments are some top actionable tips for deprived suppliers.
In addition to this, large enterprises can opt for invoice discounting solutions available by fintech companies like us that allow them to seek discounts on select supplier invoices for early payments. Once the discount is agreed upon, the payment towards these invoices can be made within 72 hrs either by using surplus funds available or commercial cards. This becomes a ZERO Risk HIGH Return option for large enterprises which is an ideal avenue for any corporate to invest their surplus cash in. Moreover, discounting invoices for early payments help large enterprises support their supplier ecosystem thereby helping them to plough back their earnings towards business continuity.
Why should we accelerate the adoption of invoice discounting for business continuity?
Currently, an estimated USD 265bn of working capital is trapped in the supply chain, making the environment a dangerous one for buyers and suppliers both and acting as a life-threatening environment for small and medium sized businesses. Harnessing tools such as invoice discounting and creating an overhaul in the financial supply chain process to adopt digital tools can be the difference that helps businesses survive. And here’s why:
- Reduced procurement costs and increased surplus earnings: Large enterprises can further lower their procurement costs by negotiating on supplier invoices, in turn saving on surplus funds.
- Improved buyer-supplier relationship: Since payments towards these discounted invoices are made before the usual payment due date, buyers and suppliers are both satisfied as buyers got a chance to earn high returns while suppliers have working capital to sustain themselves and take on more orders.
- On-demand working capital: Suppliers can opt for early payments as and when they need working capital simply by offering a discount as this becomes a source for collateral-free fund resource.
- Repurposing funds to avoid delinquencies: Access to cash opens up a world of possibilities for businesses that can help them avoid piling up bad debts; by freeing up payments, handling day-to-day operational expenses and even reploughing the funds back into the supply chain to ensure a frictionless environment.
- Capital gained in Capital earned: Instead of having notional value tied up in the balance sheets, buyers have the advantage of earning on the invoices that get raised and suppliers get a steady cash-flow stream ready for deployment into various business areas, even if it at a small cost.
As we march forward into a new normal, innovate or perish is no longer just a quotable quote but a glaring reality for businesses the world over that are experiencing transformation at a faster clip than what anyone has ever known. In such unprecedented times, the businesses need be at par by adopting to alternate tools that ensures the business continuity and access to cashflow to smoothen the critical supply chain.
