The recent lawsuit between Apple and one of its key suppliers in the U.S., GTAT1, has shed light on some of the buyer-supplier business practices at play in open account trade. In this case, the claimant was allegedly told to “put on your big boy pants and accept the agreement.” The implication is that a large buyer has significant control over smaller suppliers – a fact not likely to be disputed by any small supplier with large customers.
While not every relationship is as contentious as that scenario being played out in the courts seems to be, it is quite common for large organizations to require payment terms that help their own working capital while not necessarily thinking in the best interests of their suppliers.
Enter supply chain finance. Most corporate treasurers are keenly aware that their banks see supply chain finance as the lending vehicle of the future as banks scramble to find ways to do business in a post-Basel III environment. The bank-financed early payment of invoices supported by reasonable interest rates linked to the buyer’s (and not supplier’s) credit worthiness appears on the surface to be a win-win-win for buyer, supplier, and bank.
The UK prime minister, David Cameron, encouraged large corporates in Britain to implement such programs back in 2012, suggesting it was the responsibility of large PLCs to help small businesses receive lower-cost financing and cash flow. The White House followed suit this year with the Obama-backed SupplierPay initiative (of which Apple was, ironically, one of the founding companies). And the governments aren’t incorrect in their stance; in fact, supply chain finance programs do benefit both large corporates and their suppliers. The only part that is overlooked is the effort required to implement these programs.
And, that is where technology can help. Use of spreadsheets is not a productive way to manage cash, treasury, and risk management programs. Manual processes are also not effective in managing supplier financing programs. Spreadsheets are actually an inhibitor to even starting these programs. Technology solutions make the difference and allow these programs to be possible.
So, consider this foreshadowing. Supply chain finance (and its cousin, distributor finance) programs will soon become a requirement rather than a strategic proposition.
1. Apple accused of forcing supplier into bankruptcy – Corporate Treasurer, Nov 17, 2014