On Your Mark: Get Set to Support Your Supply Chain throughout the Pandemic
Thousands of businesses are running out of cash. Many won’t survive the coming weeks. That’s the stark reality of the current economic situation due to the global COVID-19 pandemic.
A recent study from the Corporate Finance Network in the UK suggests that one fifth of small businesses in the country will collapse in the coming weeks. The Canadian Federation of Independent Business paints an even bleaker picture, as they believe a third of their members might shutter. Meanwhile, McKinsey estimates the economic impact of COVID-19 in the United States could exceed anything seen since the end of the second World War.
It’s a difficult time for many businesses, but it isn’t hopeless. There are opportunities for enterprise buyers to support sellers in the short-term by delivering long-term solutions for supply chain viability.
Cash Buffers and Stimulus Measures May Not Be Enough
A study from J.P. Morgan several years ago found that, on average, small and medium-sized (SME) businesses have a cash buffer to support them through 27 days of business without income. And many of these businesses are now quickly eating into those buffers as trade slows around the world.
To protect these businesses, governments in many countries are taking unprecedented steps and pumping enormous sums of cash into their economies. In the UK, for example, chancellor Rishi Sunak has pledged over $330 billion—or 15% of UK GDP—to support struggling businesses. In the U.S., President Donald Trump signed a $2 trillion stimulus package into law.
Will it be enough? We don’t know. But we can’t rely solely on the government stimulus. Supply chains are living, breathing ecosystems and everyone along it—buyers, sellers and third parties—need to find ways to support them.
Buyers Can Deliver Financial Liquidity to Sellers Without Sacrificing Capital
We’re already seeing companies stepping up to the mark. In the UK, supermarket chain Morissons has pledged to pay its suppliers immediately. Fashion retailer H&M committed to accepting and paying for any orders it placed that are currently in production. This is in spite of it not doing any business itself right now.
Not every company is in the position to take similar measures, but most buyers can still ease the burden on their sellers.
It may seem trivial, but proactive communication with your suppliers can go a long way to easing their worries. If they understand what’s happening with their invoices and exactly when they’ll get paid, they can plan their own cash flow with more confidence.
So remind them of best practices when invoicing your company. Send them the link to activate their account on your e-invoicing solution. And tell them as soon as possible if there are any issues that might lead to a delayed payment. You can even deploy tools that take the friction out of this process by letting your sellers find this information themselves, easing the pressure on your accounts payable team.
Another way to provide support is by revisiting supplier financing to deliver immediate cash flow to your sellers. Right now there are $1.5 trillion dollars trapped in unpaid invoices doing nothing. Helping to unlock a fraction of this for your sellers will go a long way to easing their cash flow concerns. It’ll also provide the added value of giving your businesses another lever to pull when managing its own working capital.
What You Do Now Will Define Your Future
The sooner this crisis passes the better—for everyone. But that doesn’t look likely, at least in the short-term. And until that happens, businesses must work to support each other.
It remains to be seen how many companies will do so, however. The truth is, many businesses focus inwardly. They see their sellers as a cost base, and it’s one of the first places they turn to cut costs during a downturn.
Doing so might provide a short-term benefit, but at what cost? Buyers need their sellers just as much as sellers need their buyers. There is no “us” and “them.” We’re all in this together.
So the actions of your business today matter—not just in the short-term, but long-term as well. This situation will pass, even though it may not seem like it right now. And when it does, those companies that have done all they can to keep their supply chain intact, and even made it leaner, more agile and better capitalized, will be in the best position to thrive.
Tony Alvarez is vice president, network with Tradeshift, a cloud-based digital B2B network and platform for spend management.
