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Early payment is crucial during both disruption and recovery

Oct 25, 2021 | Blog

Over the course of the past 12 months, there have been several posts monitoring trends in global and regional trade activity on the PrimeRevenue platform. These trends help predict behaviour within the broader economy. Approximately one year after the pandemic turned the world upside down, things are looking remarkably brighter than they did last spring. Advanced economies are recovering, and our trade data supports this claim. The economic upswing has put a particular spotlight on international trade activity – both for reflection on lessons learned and reasons why we should be optimistic about what lies ahead.

 

The global economy is bouncing back, driving higher adoption of supply chain finance

The pandemic upended many aspects of life and business, including normal supply chain operations and trading activity. In a survey of suppliers on the PrimeRevenue platform, nearly half said the global pandemic negatively impacted their cash flow. Fortunately, 36% of respondents also said they were optimistic or very optimistic about the future of the global economy. Data from the PrimeRevenue platform validates optimism that the global economy is beginning to normalize following a year of disruption.

Demand for early payment solutions has steadily increased. During the pandemic, suppliers relied heavily on supply chain finance to withstand disruption, uncertainty, and volatility. Suppliers across the board advanced payment on 85% of available invoice dollars in 2020 versus 80% in 2019.

Moving into Q1, there was more pressure for suppliers to quickly boost production as business continued to come back online and ramp-up to pre-pandemic levels. PrimeRevenue saw some increased utilization of early payment as suppliers navigated economic recovery, although this is not true for all sectors. Select groups, like fuel, decreased utilization as they continue to deal with lessened demand by consumers that are largely still not commuting to work. Additionally, many businesses tightened their belts a year ago, taking aggressive action to protect operating cash. This aggressive stance, coupled with significant government stimulus in most economies, helped some businesses build up significant cash reserves through 2020. In select sectors where this is the case, we actually saw reduced utilization as these companies worked through cash reserves they built through the pandemic. This is a good sign of recovery because it signals these businesses did not experience as dire a need for cash as they originally expected.

Another indication of economic recovery is the deceleration of supplier onboarding. A strengthening economy means there is less of a “dash for cash” and less urgency for businesses to onboard onto an early payment solution. Despite this, newly onboarded suppliers continued to accelerate payment on 85% of available invoice dollars in Q1 of this year. Clearly, early payment is still providing critical cash to suppliers that must respond to surges in demand as the economy steadies.

 

There is an increased need for more innovative, transparent, and broad-reaching early payment solutions

As demand for supply chain finance grows among suppliers, so does the urgency for supply chain finance providers to boost innovation and dial down risk. Transparency is important for all parties involved – buyers, suppliers, and funders – to ensure ethical and responsibly implemented supply chain finance that provides sustainable, scalable results. Buyers want working capital solutions that decrease financial risk across the supply chain, are more accessible to suppliers of all sizes, and simplify the onboarding process.

 

The future is bright

The data we gleaned from the PrimeRevenue platform is just one aspect of this ongoing analysis. Our conversations with clients also give us an invaluable perspective from the trenches, and our clients have shared business lessons learned from the pandemic. For one, many buyers are re-inspecting their supplier diversification strategies to ensure they don’t rely too heavily on any one region. Regional shutdowns had a drastic impact on the rest of the world, so buyers are exploring ways to diversify their supplier base without alienating existing supplier relationships. They recognize there is an exciting opportunity to increase supplier diversity to build stronger, more resilient, and sustainable supply chains.

Business leaders are also paying closer attention to the financial glue that knits suppliers and buyers together. They are evaluating how to help their suppliers be fiscally resilient during periods of disruption and what tools they should leverage to nimbly adapt to contractions and surges in demand.

If the pandemic taught us anything, it is the depth at which businesses around the world are interconnected. At the end of the day, the world isn’t getting bigger – it’s only getting smaller. While we might be making our way out of the woods, businesses have learned the importance of implementing solutions that will make global supply chains strong and resilient for whatever challenge may be thrown our way next.

*This article was originally published on PrimeRevenue.com and adapted for Addendum.co.za

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Addendum provides supply chain finance and funding solutions to companies and funders in Africa. Please contact us for more information about how we can unlock value for your business.

Addendum provides financial technology solutions to companies and funders and aims to become the benchmark for best execution in our targeted markets. Our fintech solutions are capable of unlocking capital and funding for businesses of all sizes. We have designed real-time, online solutions that make markets transparent and products simple and seamless to execute.

Where others saw a barricaded, antiquated machine, we saw possibility. With transparency, convenience and choice as founding principles, Addendum puts you in charge. We believe that a small change to your business strategy – an addendum – can open a world of potential for your business.