Cash & Working CapitalCOVID-19

Helping Hands: How Corporates Are Aiding Customers and Suppliers

By July 28, 2020 No Comments

Supply chain finance and how the “we’re in this together” approach to the pandemic is playing out.

The COVID-19 crisis has put the meaning of business community—emphasis on community—into sharp relief as some businesses have survived well or even thrived (tech, consumer staples), while others have suffered devastating losses (retail, travel and hospitality).

  • At few points in recent memory has the mutual reliance on comrades in commerce been more important; and as in families, it’s often the stronger of the business brotherhood who pitches in the most to see the tribe through tough times.

At a recent Tech20 treasurers’ meeting, members shared what they were doing to keep business running—their own and that of all their value chain partners.

Who needs money? Can you collect later and pay earlier? Members across the NeuGroup universe—strong, global and investment grade, mostly—have shared throughout the crisis that they have been asked to extend collection terms to customers and pay suppliers earlier.

  • But that means being judicious and determining “how much capacity we have and how much credit to give,” said one member. “Some of our programs are more efficient and we can’t afford to be too generous.”
  • Nevertheless, typically the strongest credit in the chain, large corporates are the best positioned to partner with C2FO, Taulia or another supply chain finance specialist or with their banks for a proprietary offering.

Win-win: Change of business models may present opportunity. When the world as you know it grinds to a halt, what other avenues to reach customers are there? For brick-and-mortar retailers, going online, if they haven’t already, seems the natural step if customers cannot come to them. Some build their own; others join one of the branded platforms. 

  • By expanding a retail revival program already in place for underrepresented communities, one was able to onboard new sellers—mainstream small and medium-sized businesses that had never sold online—to its platform rapidly while also supporting them with a curriculum of educational tools on how to use it and thrive on it, plus a free trial period and free listings.

Speed and scale require ownership. Operationalizing a new program is one thing; scaling it is another. To deliver on promises made to new sellers at a faster pace than normal takes internal coordination. One idea is to have a special task force own it, with either treasury driving it or with significant involvement. 

  • Treasury can help creating educational tools addressing what to do when goods are sold and how the money comes into the seller’s bank account.
  • On the corporate side, this connects to the treasury and balance sheet implications of extending credit to customers (such as payment grace periods) as well as partnering with global billing to streamline while managing fraud risk.
  • It helps for treasury to also be the owner of collections.

Negotiating new terms to spread the pain. In situations where the company is a platform between a seller and buyer—new economy service companies come to mind—the fine print of agreements really comes into focus.

  • In cases where refund policies are subject to seller discretion and/or are too one-sided, the platform or broker may need to step in to ensure the pain of lost business is shared equitably between buyers, sellers and itself via an amended extenuating circumstances policy.
  • This requires careful thought on what will feel equitable to all involved to maintain brand goodwill, and how the broker itself can finance its part, including loans and dipping into reserves.
  • In addition, if refunds during the pandemic suddenly go from a relative exception to an avalanche of requests, it may also require a reengineering of the payments-reversal process to manage significant transaction volume.
0
0
Antony Michels

Author Antony Michels

More posts by Antony Michels