How Corporate Social Responsibility Starts by Supporting Your Supply Chain
May 14, 2020 |
The C2FO Team
Providing suppliers a flexible way to be paid early on their receivables not only benefits your company’s ecosystem, it can help the worldwide economy.
If there ever was a time for your company to do what it can to help your suppliers, that time is now.
The economic crisis has caused considerable harm to companies worldwide, particularly small to mid-sized enterprises (SMEs). We at C2FO estimate the liquidity need of these businesses today is $16 trillion, but it could be much more than that.
Governments and banks have responded by pumping hundreds of billions of dollars into the financial system in recent weeks, but that money only goes so far. A worldwide economic survey C2FO conducted of more than 500 SMEs worldwide in April found that 75% of those businesses lack enough cash for the next six months due to the COVID-19 pandemic. A recent study by SMB Group reported that two-thirds of small to mid-sized businesses expect their revenues to decline by 30% or more in 2020. An April survey of small business owners in the United States by WalletHub found 87% of them had been adversely affected by the coronavirus.
What’s even scarier is that these surveys may actually underestimate the problems businesses face today.
Early payment from customers is the fastest, most effective way for SME suppliers to generate the cash they need to survive this crisis. Early payment programmes like the one offered by C2FO have proved to be an efficient way of matching suppliers’ accounts receivable with enterprise customers’ accounts payable in normal times. Today, in the era of COVID-19 and government-imposed shut-downs, those programmes are absolutely vital.
“Helping to ensure the companies you do business with have the cash on hand to survive and perhaps even grow at this time is not only a smart business strategy, it can have a ripple effect on your company’s future and on the economy at large,” said Dru Shiner, chief sales officer for C2FO. “Not only does it strengthen your supply chain, but it’s an approach to corporate social responsibility that has an immediate impact.”
Here are five reasons why an early payment programme not only helps your supply chain, but can make a positive impact on society:
1. It empowers your suppliers
Today, more than a million companies worldwide participate in early payment programs through C2FO, a marketplace designed to match corporates’ accounts payable with their suppliers’ receivables in a way that generates more working capital for everyone.
The C2FO platform is unique from supply chain finance (SCF) in that suppliers select the customer invoices they wish to accelerate and determine the discounts offered on each one. The offers must be approved by the customer for early payment to transpire, either from the customer’s balance sheet or through C2FO’s funding network. The flexibility of C2FO’s early payment programmes leads to greater participation rates among suppliers than for most SCF programmes.
The reason for that participation is simple: suppliers have a greater say in the process and have more control over their cash flow, said Iain Rolfe, C2FO’s managing director for Australia and New Zealand.
“The buyer becomes less of a customer and more like a joint party in their business,” he said. “The truth is that when you give anybody the power to make their own decisions, they’ll always be happier with the outcome because they made the decision.”
The ability to receive early payment on its receivables with a leading retail brand has been vital for Emerge BPO, a Guyana-based company that operates call centers in North and South America. C2FO’s Dynamic Supplier Finance (DSF) solution, through which buyers can use third-party funding to pay suppliers early, has helped Emerge BPO meet payroll and continue to expand during the pandemic crisis without taking on debt.
“It’s been an important part of our ability to grow, and it will be an important aspect for other small businesses,” said Adrian Collins, Emerge BPO’s co-founder and director. “It’s great because we don’t have to go into debt. We just collect early on earned revenue.”
2. It strengthens your supplier relationships
As everyone knows, good suppliers are hard to find — and even harder to replace. Right now, many of those trusted suppliers are in desperate need of more liquidity — right now. The loan programs by governments and central banks are already proving to be too little, too late.
Even if your own cash position has taken some hits from the pandemic, there are still ways for you to help your suppliers now. With C2FO, you can choose to make early payments from your balance sheet, or from a third-party in C2FO’s funding network through Dynamic Supplier Finance (DSF). Because all of the transactions flow through the C2FO platform, there will be no delay to the early payment process, whether the money comes from your company or through a third-party lender.
The ability to provide your suppliers with immediate, much-needed cash not only solidifies your supply chain in a time of crisis, it can improve the level of trust and reliability with those suppliers for years to come.
Ultimately, both suppliers and buyers benefit from strengthening their working relationships during this critical, uncertain time, said Colin Sharp, C2FO’s senior vice president of sales for Europe.
“This is all about a buyer caring about his suppliers because he sees the bigger picture and, right now, this bigger picture is visible to everyone,” he said. “If the large company has suppliers that go belly-up, who will give to those buyers the services and the goods that they need?”
3. It helps the economy and society
Funding your suppliers through early payments not only benefits your company’s supplier network, but also the economy and society at large. More liquidity for suppliers means more workers taking home paychecks, as well as more freedom for that company to innovate and take risks than in times when cash is tight.
“As a supplier, you can focus on business-growing activities,” Rolfe said. “You get into this feedback loop which becomes faster, and then you can start doing things faster, pivot and adjust instead of waiting 30 days or longer on the payment you’re going to get.”
In India, more corporates have adopted early payment programmes as an efficient way to keep their supply chains healthy. Over the past four years, C2FO’s early payment programmes have grown at an annual adoption rate of 300% among Indian businesses. Ravi Tanniru, senior vice president of enterprise sales for C2FO India, said companies in the world’s fastest-growing economy are starting to understand the big-picture benefits of early payment.
“An early pay programme helps maintain balance in the circulation of liquidity in a society,” he said. “A supplier has liquidity, he pays his employees, they can then spend money for their needs. Hence, business flourishes and the cycle continues.”
In 2019, Jumbo Supermarkten, the largest grocery chain in the Netherlands with more than 670 stores, received an award for its C2FO early payment programme from Europe’s Supply Chain Finance Community Forum. The programme, which uses dynamic discounting to help Jumbo’s SME suppliers build liquidy at a faster pace, was applauded for not only helping suppliers, but for benefiting the Dutch economy and exceeding the fair business standards promoted by the government’s PayMeNow initiative (Betaalme.nu). Since implementing the programme, Jumbo’s suppliers have been paid an average of 32 days earlier.
That was in 2019. Today, with the pandemic crisis causing havoc for businesses everywhere, Jumbo is temporarily allowing its SME suppliers to receive early payment at a 0% rate through C2FO.
“With their programme of payment solutions tailored to small, medium and larger suppliers, Jumbo takes real responsibility for sustainable payment terms and is amongst a small group of companies that act as a leading example in this area,” Joost van den Hondel, an official with Betaalme.nu, said when Jumbo’s programme was awarded in November.
4. It’s corporate social responsibility with a rapid ROI
Most large corporate enterprises and their leaders are mindful of the important societal role that they play. Corporate efforts to help the environment, address world poverty, and solve a range of other global issues are laudable and important. These efforts are also expensive and do not generate revenue. That is not their purpose.
Early payment programmes represent a rare opportunity for corporates to do some social good and also generate a consistent return on investment. Not only are they helping their suppliers and communities, but they are creating an additional, steady revenue source. Within a few weeks of launching an early payment programme with C2FO, corporates can generate returns ranging from 4% to 9% in risk-free cash. This money can improve EBITDA, meet quarterly goals and other financial metrics, or go toward a company’s humanitarian efforts.
“This is economically beneficial to the buyer itself. It’s a win-win,” Sharp said. “And from that money, that yield, they can fund their corporate responsibility projects.”
5. It can sustain your company and supply chain
The main goal of early payment, however, is not to line large corporates’ pockets. It’s to help suppliers, particularly small to mid-sized companies that are most vulnerable to the current economic conditions.
Providing your suppliers with an easy, efficient way to generate more cash flow without borrowing from their credit lines or government loans not only will benefit your supply chain in the coming months, but in the coming years.
Supply chain sustainability depends on everyone’s business needs being met. And early payment programmes can transform the traditional buyer-supplier relationship into more of a partnership. Those corporates that have the highest level of trust with their suppliers are the ones who will emerge from the economic crisis poised for growth. Those large enterprises that choose to shield their cash at the expense of their trading partners may eventually experience a different fate.
Supply chain finance can be used to gain leverage over one’s suppliers through extended payment terms, or it can be used to lend a helping hand, Rolfe said.
“We are in the helping side of the equation,” he said. “The kicker is that if a customer, a big buyer, chooses to look after themselves, the returns they get might be phenomenal, but they’re going to end because suppliers are not going to take that forever.”
If the economic crisis sparked by COVID-19 has taught us anything, it’s the fact that we are all in this together. No individual or organization can survive alone.
For all of us, it’s an opportune time to help those in need. Businesses that close affect jobs, families and add to the burdens of governments. Early payment for suppliers is one effective way that can not only benefit your company’s immediate ecosystem, but can contribute to the health of the world economy as well.