Large telecom, computer, equipment and other OEM manufacturers use a network of both third-party resellers and distributors to sell product in multiple countries. Many of these local market distributors face cash flow issues because of lengthy domestic payment terms and limited access to credit facilities or affordable funding. Banks and other lenders can provide direct loans and credit facilities to distributors, backed by varying levels of support and involvement by the corporate OEM. A healthy dealer and distributor network is important for current and future sales for the OEM. According to one banker, a lot of distributors fall into the mid-market segment and for them the average cost of credit is high, and they may even find it difficult to arrange credit line.
But Trade Financing Matters sees great potential for cloud-based e-commerce platforms to leverage a seller-centric version of distributor finance in OEM dealer/vendor/distributor structures.
In this arrangement, the OEM functions as the “middle party” working with its dealer/vendor/distributor network and its network of end buyers (or accounts) to manage invoicing, matching, price validation, dispute management, credit and collections, payments to its dealers and collecting receivables from national account customers. Third-party providers may offer risk management or logistics support to broaden such a solution.
This alternative version of distribution finance is suitable for many industries, including automotive, technology, construction, agriculture, healthcare and manufacturing. Yet, despite significant improvements in predictive models based on big data on purchase orders and invoices, distribution finance has not materially evolved in terms of its services, pricing or market participants.
Emerging markets add even more pressures to distributors because of the disparity in payment terms of their local buyers compared to paying the OEM. You may find an OEM or fast-moving consumer goods (FMCG) company selling to distributors on 30-day terms but the distributor sells to its end customer on much longer terms.
While banks are seeing growth in distributor finance across many trade flows, and even in a multitude of currencies, they lack the cloud solution to manage the OEM-distributor-end buyer network. Through the use of electronic B2B platforms that enable the efficient flow of data and documents, a transformation can occur that will be healthy for all parties to the supply chain, thus enabling the OEM to achieve superior sales growth, and helping vendors, dealers and distributors to effectively manage cash flow.