RALEIGH, North Carolina, October 20, 2021 /PRNewswire/ — Companies in many industries such as retail, pharmaceutical, automotive, CPG, aerospace, and food and beverage are now using an initial tool to extend multilevel trading with suppliers for the extension of payment terms in order to obtain average payment terms of 90 days. However, in most cases, it depends on local country regulations or mutual payment terms agreement. There are other mechanisms such as ePayables/Virtual Cards Solution, Dynamic Discounting Model and Supply Chain Finance (SCF) Model that companies can use independently. But collaborative use can ensure maximum benefits regarding extended payment terms and cash requirements.
”We strongly believe that longer payment terms can lead to increased working capital which in turn helps to reduce the need for business lending and on the other hand add cash flow stability to the timing of the expenditure flow. Expanded supplier payment terms can showcase vendor stamina and trust,” said Sujeet Kumar R, Principal Research Analyst at Beroe. “When the company uses extended payment terms, they become able to manage cash flow quickly. Today, large companies are exploring various mechanisms to extend payment terms and optimize working capital, such as multi-level negotiation with suppliers. “
60-65% of Fortune 500 organizations have included mechanisms such as ePayables and Supply Chain Finance (SCF) to make payments with long and short suppliers. So, businesses that focus on prepayments, rebates, and rebates use the ePayables model, while businesses that focus on prepayment rebates use dynamic rebate. An organization whose sole purpose is to extend supplier payment terms employs a supply chain finance model.
From a broader perspective, payment terms are affected by country-specific laws, followed by vendor size/coverage, non-critical vendor categories/vendors, customer spend size, etc. France and Germany have specific laws in place to protect the interests of suppliers, which makes it difficult to extend payment terms. Along the same lines, global suppliers have uniform payment terms across all geographies, and local suppliers have short payment terms because late payments can impact their cash flow and liquidity.
The most important part of global companies have remittance days as high as 60/90 days. They are adopting the supply anchor financing procedure to have extended installment terms with suppliers limited by guidelines. They adopt a dynamic discounting strategy to get a discount on early payments. Suppliers can issue receipt installments in 10-15 days and give a 2-2.5% discount to the buyer’s organization.
Virtual card installments allow buyers to make timely installments and leverage prepayment limits, cost investment funds, income age, and security strengths. Dynamic discounting describes an assortment of strategies in which remittance terms can be established between a buyer and supplier to expedite the remittance of labor and products as a trade-off at reduced cost or markdown. . The SCF model is a modern technique used by top organizations due to its constructive result. In this model, the buyer’s association partners with the banks. It uses its SCF device to subsidize providers who help organizations extend remittance terms to 120 days.
“With the help of models such as tiered negotiation with suppliers on extended payment terms, companies can ensure better value for money. Yes, there are restrictions, but effective implementation can open up great opportunities for growth and we are already seeing that in countless case studies,” Sujeet said. Kumar R, Principal Research Analyst at Beroe. “Developed countries like the United States have emerged as 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.”
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SOURCE Béroé Inc.