So much of the press around supply chain finance recently has focussed on the rights and wrongs of powerful buyers such as Tesco and Carillion using Supply Chain Finance to soften the blow of a forced extension to their payment terms and it got us wondering where this notion of a suppliers right to receive prompt payment (as opposed to on-time payments) came from.
Payment terms have always been a crucial part of both the marketing mix and business strategy, and a classic way to disrupt the business model of your competitors and (blatant misuse of market power notwithstanding) I haven’t yet heard a compelling argument why short payment terms should be mandated by the government.
My favourite example is that of a well known online retailer who used rapid payments to negotiate great prices that they could pass on to customers and establish themselves as one of the most successful players in this a fast-growing market. With the established market competitors such as Evans pushing for constantly longer payment terms, it seems the suppliers were happy to agree after all even Shimano have targets to meet!
Of course, not making payment to the agreed terms is another matter altogether. Once payment terms have been agreed (be it 30, 60, 90 or 120 days) then unjustified delays can cause significant grief and in some cases even insolvency for the suppliers involved.
It has been great to work with a number of innovative UK companies who are finding innovative ways to use supply chain finance to disrupt their markets and differentiate themselves from competitors supply chain versus supply chain.
Now that is a serious win-win for Supply Chain Finance.
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