Emerging factors that at first sight look like fresh sources of risk may provide treasurers with scope to strengthen their relationships with suppliers.
FX… counterparties… interest rates… fraud. All are longstanding, traditional risk areas for corporate treasurers. Even cybersecurity has been acknowledged for several years now as a matter over which treasury departments must be particularly vigilant. But risk factors connected to the supply chain are forcing treasurers to pay greater attention to how they interact with the vendors on their companies’ books. Those factors are:
Supplier-based financial risks and sustainability issues
Almost one in five (17%) small firms operating within European supply chains frequently encounter payment terms longer than 60 days, according to research published last September by the UK’s Federation of Small Businesses (FSB). More than a third (37%) of smaller suppliers in the organisation’s membership reported that their payment terms had increased over the preceding two years. In some cases, payment-term extensions can be mitigated by supply chain finance (SCF) programmes. But often, these arrangements simply enable suppliers to play catch-up, rather than get ahead of the game, and primarily work for the largest suppliers, those companies least in need of liquidity. In reality, those at risk remain exposed to lengthy payment terms.
This scenario can strain relations between buyers and suppliers. Furthermore, it is crucial for suppliers to have a predictable inflow of payments to invest in innovation, so they can grow and develop their products and services for the benefit of their customers. If suppliers don’t have the scope to upgrade themselves in step with industry trends, then ultimately it is their buyers who will suffer.