Great supplier relationships are critical to profits, often overlooked by SMBs is maintaining transparent supplier partnerships.
The moment you begin to experience growth is the moment you need to understand that supply chain health and payments terms directly affect your profitability. There’s rarely (if any) industries that are immune to the disruption caused by a breakdown in supplier relations or change in payment terms.
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Supplier relationships are of course more complicated as you move up the chain to corporate. In a recent article by Australian Mining, they reported that Rio Tinto has proposed doubling of payment terms from 45 to 90 days, workers, suppliers, and contractors in the sector are still affected by long payment times, increasing the need for more secure financing plans to cover these gaps.
When payment terms are pushed out, the gap between keeping creditors and suppliers paid on time can begin to stretch and cause internal cash flow gaps in operational liquidity. These gaps will likely start out sporadically and increase to a consistent gap as growth continues.
Secret or “confidential invoice finance facilities” are replacing traditional invoice factoring @getwaddle https://t.co/9hrE7IR6PR
— Waddle (@getwaddle) September 28, 2016
Experienced business owners understand that maintaining constant communication with debtors while balancing payments to suppliers is one of the critical blockers that will stop a business from growing. While most larger customers will have pre-determined payment cycles such as 45 days end-of-month (these can stretch out to 75 days), negotiations with smaller customers to cut down payment times can smooth out cash flow while larger customer payments come in. A common way to increase payment times is to offer early settlement discounts.
Supplier payments, specifically for wholesalers or manufacturers can negotiate discounted purchases by offering to pay for stock up front. Of course, this only works if you have free cash flow in the business that is not utilised elsewhere.
As you can see from the above, you can offer settlement discounts and obtain discounted stock purchases from suppliers. However, the challenge is putting these into practice, without adding more back office load to the business than you are saving.
Juggling the discounts you are offering for settlement discounts versus the discounts you are receiving from suppliers needs careful analysis and monitoring to ensure you are in fact benefiting from putting these into practice as obtaining and offering discounts is often very inconsistent across the entire supply chain and can easily result in no profit gain.
Secure financing plans to cover these gaps & profit
The Waddle invoice financing solution is used to strengthen the supply chain and bottom line profits simultaneously. By establishing a revolving line of credit against customer (debtor) payments, SMBs can have on-demand access to working capital by drawing funds against future invoice payments at affordable rates that are more cost effective than offering the discounts, including the hidden costs of managing the discounts across all customers (debtors).
Waddle’s funding program enables SMBs to collaborate with suppliers confidently on payment discounts at a rate that’s acceptable for both parties and directly provides an additional source of liquidity to SMBs across the whole supply chain. It is a win-win scenario. Instead of managing both sides of the chain for discounts, SMBs using Waddle can negotiate terms with pinpoint accuracy on the supplier side. For example, drawing down funds against unpaid invoices may cost the business owner X % for 30-60 days, and by negotiating a 5%-10% discount on purchases, financing costs are covered by the discount.
The business owner increases profits on the gap between the financing and discount obtained, and the supplier has been paid up-front or within the agreed terms, providing further liquidity down the chain to the supplier helping to maintain a strong, healthy relationship.