Access to funding becomes more difficult – businesses which regularly make late payments to their suppliers are likely to see their standing in the eyes of their banks diminish. Growth consumes more cash than it generates and needs to be funded with a supply of cash. Shandley notes that supply chains are more interdependent than ever before: “The pandemic has illustrated, in stark terms, that the financial health of any given company is heavily influenced by the health of the third-party suppliers that you’re doing business with. Accounts payable management, unfortunately, can get big and unwieldy. It is vital in these situations that both parties maintain dialogue. At the very least, the bank may decide to raise the pricing on its credit facilities. Follow up on outstanding invoices very actively – now more than ever, companies need to maintain regular contact with customers, following up on outstanding invoices even before their due date, to make sure that any issues or queries that might delay receipt of payment are resolved. 6 Secrets to Successful Procurement in a Crisis, Adidas Faces Colossal Challenges to Reshoring with 90% of Its Products Manufactured in Asia, Teaming up with 11 Local Companies Helped This Small Business Fulfill a Critical NYC Contract, The 12 Best Supply Chain Companies of 2020, Behind the Scenes of the Strategic Ikea Supply Chain, Inbound Marketing ROI: For Industrial Companies & Manufacturers, American Toy Manufacturers Who Make The Holidays Possible, Honda Gets Ready to Mass-produce Level 3 Autonomous Cars, Energy Tech Company's West Virginia Project Expected to Create 1,000 Jobs. In this article we look at the impact of COVID-19 on Asian trade flows, consider the impact on suppliers when their customers delay paying them, offer some suggestions for preserving cash flow in these challenging times and explore how supply chain finance is evolving. Non-payment or late payments from larger businesses hamper the smooth cash flow for SME’s.A study by FSB revealed 37% of SME’s have run into cash flow issues and 30% of SME’s have considered using their business finance to cover cash flow issues. Companies must communicate effectively with their employees in such situations and train them in how to respond appropriately to complaints or criticism from suppliers. According to Atradius, a global credit insurer, 90% of suppliers are reporting late payments. These included both impacts on the firm (reduced investment, and a delay in paying their own suppliers) and impacts on individuals (reduced pay reviews, and reduced bonuses). In fact, according to a study from The Hackett Group, Inc., from 2016 to 2017 the 1,000 largest U.S. public companies delayed payment to their suppliers. David Huey, Atradius' president and regional director of U.S., Canada, and Mexico said, “It is interesting that in a healthy, growing economy, bad debt continues to plague B2B markets. Website Last Modified December 2, 2020. Consequently, companies need to re-examine and refine their internal processes with a view to preserving maximum liquidity. Theoretically, such growth creates stability that extends to the suppliers themselves. Treasury Today uses cookies to give you the best possible browsing experience. Suppliers See Longest Wait for Payments in Last Decade. More specifically, delay in payment of completed works is likely to constrain contractors’ cash flow, which in turn might affect timely payment of sub-contractors, workers, suppliers, and service providers. The key is (i) the latest cutting-edge technology and (ii) using different funding structures for different supplier groups. In 2016 The Hackett Group completed a Payment Practices Poll and discovered that “nearly one-quarter of all supplier invoices are paid late.” We recommend that you research regulations in your municipality to ensure supply chain is aware of the consequences of past due payments . 101 4.12 frequency of late payment in government infrastructure projects in relation to new build budget volume per Enlist Your Company ico-arrow-default-right. This last point was noted in They will have looked at their supplier lists and made some internal ranking decisions about which relationships are the most important – ie those suppliers which must be paid on time, and those which can wait. An apology letter for late payment is written to express regret for making a late payment. Afraid to lose business with clients, and without effective regulation, many suppliers feel that they must accept late payments as the new normal. Stay up to date on industry news and trends, product announcements and the latest innovations. With the rising tide of late payments and the lack of faith in public officials’ ability to curtail it, suppliers are put in a precarious position. Terms and Conditions, Introduction Research in 2016 into access to finance in the oil & gas industry 2 identified that many supply chain companies were being affected by late payment (defined as being paid by their customers later than agreed Additionally, 28% have had their relationship with suppliers tested because of cash flow issues, while 35% have had to cough up additional late payment fees for missing deadlines. In the UK, 17% of all payments to SMEs are late. Privacy Statement and Customers in high risk sectors should be monitored closely and appropriate watch lists maintained. Suppliers who experience regular delays in receiving payments may find that this has a negative impact on their credit rating, thereby making it harder to obtain bank financing. Wind-powered Car Carrier Will Cut Emissions by 90%, Why Ice Cream Trucks May Offer a Crucial Lesson in the Development of a COVID-19 Vaccine. For example, Black & Decker’s delayed payments, among the highest in the United States, have freed up $500 million in capital since 2005. ico-arrow-default-right. This is occurring at unprecedented rates. Such results are significant, since pushing off payments shifts responsibility onto vendors and increases their risk. David Huey, Atradius' president and regional director of U.S., Canada, and Mexico said, “It is interesting that in a healthy, growing economy, bad debt continues to plague B2B markets. In the prior four quarters, company cash balances on average went up 6.2% per quarter, while in the quarter following COVID-19 we saw an average cash balance increase of 9.0%. If the email address you gave is registered with us, your password reset link should be in your inbox within the next 5 minutes. However, Jae-sung believes that such growing pains are necessary for the technology to become a common practice — one that some believe will be the future of trade finance. Late payments can be detrimental to your organization’s valuable supplier relationships. The best-managed companies understand the negative consequences of paying suppliers late and know that prompt payment of suppliers can be a very useful differentiator in business. “The longer you wait, the more risk that your clients hit trouble. As a company grows, the number of its suppliers grows as does the invoices it has to pay. Can Your Company Help Provide Critical Supplies? See Damage to supplier relationships – delayed payments cause tensions in the supplier/customer relationship. TradeIX have considerable expertise in this area, and Scott provides some thoughts on the way forward for SCF in Asia: “Popularity in SCF solutions always increases further during times of crisis as working capital and cash become an even higher priority than usual. On the buy-side, the benefits to a firm of enforcing extended payment terms will erode over time. Late payment can enhance cashflow, but it can also do terrible damage to supplier relationships. Payments and collections – the folly of late payment Published: Nov 2020 In this article we look at the impact of COVID-19 on Asian trade flows, consider the impact on suppliers when their customers delay paying them, offer some suggestions for preserving cash flow in these challenging times and explore how supply chain finance is evolving. Company. Issuance of purchase order numbers may be subject to a new process. These are uncertain times for companies all over Asia. From 2017 to 2018, average payment duration has increased from 61 to 63 days. More than 50% of UK SMEs currently experience or expect to experience a negative impact on company investment, their ability to pay their suppliers and their ability to pay staff an annual bonus. From 2017 to 2018, average payment duration has increased from 61 to 63 days. In contrast to Black & Decker’s CFO, Subran and others find this trend to be worrisome. Here are some practical measures to consider: Keep on top of process changes – in normal times invoice settlement delays often occur purely because of inefficiency – weak internal processes, lack of automation, administrative errors or poor cash flow management, for example. There’s a new trend in the industrial sphere, and some suppliers are likely not happy about it: Lately, when the supplier bill comes due for U.S. companies, they have been taking a rain check.