Ever since the Great Recession banks have tightened up their credit requirements, and more recently, interest rates on business credit lines have been rising. These events have made it increasingly difficult for small businesses to finance sales to their customers. Many small, cash strapped, companies have moved to a new financial option called the Merchant Card Advance. This can be very expensive, while at the same time, large companies who buy from small and medium size vendors have extended their terms of payment. This puts a squeeze on the company’s cash flow. It’s not unusual for the Fortune 500 company to ask for 60-90-120, and even, 150 days terms to pay their vendors.
These extended terms put a tremendous strain on the supply chain. It was hard enough for vendors to wait 30-40 days to get paid. 120 days can be devastating for most vendors, forcing them to turn down orders and life sustaining revenue. Or worse, these companies turn to high interest lenders that eat up profit margins. Extending credit terms longer can also have devastating results for buyers. Not being able to get services and parts from critical vendors can impact the ability to manufacture and service customers.
So why would fortune 500 companies risk disrupting the supply chain by demanding these onerous terms? Well, because they have added “steam control”. They have mapped out an alternative that can provide a way for vendors to get paid faster not slower. Buyers have discovered that if they demand longer terms, and at the same time ask for a small early pay discount from their vendors, they can get more efficiency out of the supply chain (controlling the steam). Offering businesses that don’t have easy cheap access to capital an opportunity to get paid in 2 or 3 days instead of 30-60 or 90, improves vendors’ cash flow while the buyer gets a lower cost of goods.
Larger well capitalized vendors who can wait 60-90 and 120 days can help a buyer finance inventory and sales without the need for the buyer to use their capital or financing giving them more money for expansion.
Making all of this work does require specialized coordination from on boarding vendors into a program, in order to move money quickly and efficiently to vendors. That is where FinTech comes in; providing specialized software that makes the entire system work.
AeroPay Express entered the market in 2017 offering a service to mid-market buyers that are looking to take advantage of vendors’ discounts but don’t have the same support from IT for full ERP integration. AeroPay Express’s turn key solution takes over accounts payable payments, negotiates discounts, and onboards vendors, without requiring ERP or software integration. AeroPay Express handles all payments to vendors with just one click from the buyer freeing companies to concentrate on areas of the business that make money, not cost money. A buyer stretching their DTP (days to pay) while offering an early pay solution can add hundreds of thousands, even millions, of dollars to the bottom line, while improving cash flow for both the buyer and seller.
If you are looking to provide steam control and efficiency into your supply chain, take a minute, give AeroPay Express a call.