Companies Using Extended Payment Terms with Suppliers to Optimize Cash Flow, Says Beroe
RALEIGH, North Carolina, 20 October 2021 / PRNewswire / – Companies in many industries like Retail, Pharmaceuticals, Automotive, Consumer Staples, Aerospace, and Food & Beverage Now Use Initial Tool to Expand Multi-Trading levels with suppliers for the extension of payment terms in order to obtain an average payment term of 90 days. However, in most cases it depends on the local regulations of the country or the mutual payment terms agreement. There are other mechanisms such as e-payment / virtual card solution, dynamic discount model, and supply chain finance (SCF) model that businesses can use independently. But collaborative use can ensure maximum benefit regarding extended payment terms and cash flow requirements.
“We strongly believe that extending payment terms can lead to an increase in working capital which in turn helps reduce the need for business loans and on the other hand adds cash flow stability to the business. expenditure stream. Expanded supplier payment terms can demonstrate vendor endurance and confidence, ” said Sujeet Kumar R, senior research analyst at Beroe. “When the company uses extended payment terms, they become able to quickly manage cash flow. Today, large companies are exploring various mechanisms to lengthen payment terms and optimize working capital, such as multilevel negotiation with suppliers. “
60-65% of Fortune 500 organizations have included mechanisms like ePayables and Supply Chain Finance (SCF) to make payments with long and short tail vendors. For example, businesses that target prepayments, discounts, and discounts use the ePayables model, while businesses that focus on prepayment discounts use dynamic discount. An organization whose sole purpose is to extend supplier payment terms uses a supply chain finance model.
In a broader perspective, payment terms are affected by country specific laws, followed by supplier size / coverage, non-critical categories / suppliers, size of customer spend, etc. Countries like France and Germany have specific laws in place to protect the interests of suppliers, making it difficult to extend payment terms. On similar lines, global suppliers follow uniform payment terms across geographies, and local suppliers have short payment terms as late payments can impact their cash flow and liquidity.
The largest portion of global businesses have payout days of up to 60/90 days. They adopt the procurement anchoring financing procedure to have extended payment terms with suppliers limited by directives. They adopt a dynamic discount strategy to obtain early repayment. Suppliers agree to make receipt installments in 10-15 days and provide a 2% to 2.5% discount to the purchasing organization.
Virtual card payouts allow buyers to make timely payouts and leverage early payout limits, cost investment funds, income age and security strengths. Dynamic discount describes an assortment of strategies where payout terms can be set between a buyer and supplier to speed up the payout of labor and products in exchange for a reduced cost or markdown. The SCF model is a modern technique used by top organizations because of its constructive result. In this model, the buyers association is associated with the banks. He uses his SCF device to subsidize providers who help organizations extend payment deadlines to 120 days.
“With the help of models such as multi-level negotiation with suppliers on extending payment terms, companies can achieve better value for money. Yes, there are restrictions, but effective implementation can open up great opportunities for growth and we are already seeing this in countless case studies, ”said Sujeet Kumar R, Senior Research Analyst at Beroe. “Developed countries like the United States have become the most advanced and mature market for the supply chain finance tool which is used as a healer to meet internal obligations of liquidity constraints.”
For more market insights, purchasing insights, supplier analysis, price and cost benchmarking, please connect to Beroe LiVE.Ai: https://www.beroeinc.com/beroe-live-ai/
Beroe is the world’s leading provider of sourcing intelligence and supplier compliance solutions. We provide critical market insights and analysis that enable companies to make smart sourcing decisions, which helps reduce costs, benefits and risks. Beroe has been providing these services for over 15 years and currently works with more than 10,000 companies worldwide, including 400 of Fortune’s 500 companies. For more information on Beroe Inc., please visit https://www.beroeinc.com/.
SOURCE Béroé Inc.