Calling Bollocks on $2.3 trillion Impact of Paying Suppliers Earlier

bollocks

Peter Loughlin at Purchasing Insight recently calculated the economic impact of paying suppliers early - $2.3 trillion to be exact. Wow. This calculation is based on the time an invoice sits unpaid until the due date and that if suppliers were paid in 10 days, $2.3 trillion would be released into our global economy, saving suppliers $232 billion and buyers $209 billion.

I don’t know Peter personally, but I call bollocks.

Let’s assume the back of the envelope analysis is correct.

  • Even excluding contractual issues, who would fund this $2.3 trillion? Do we assume receivables are a risk free asset class?
  • Do we assume there is some magical Structured Purpose Vehicle structure we can invest in, guaranteed by the government?
  • Why are invoice marketplaces struggling to create real volume if there is so much non bank interest?
  • Do we really understand in detail the dilution, credit note process, discrepancy resolution, etc.
  • Do we understand how einvoicing and supplier network vendors transfer assets?
  • Do we understand collateral transfer or perfection of interest services embedded in their third party finance models?

I can tell you in my talks with large corporates, for every one talking early pay, another five are looking at working capital programs and part of that is term extension.

I think we need to be careful of tossing nice numbers around. The world of credit is complex and generally poorly understood by the people that are pumping the hype.

The structural changes occurring now are leading to a massive movement to create non bank entities because of the dislocation of capital and credit markets. But its hard and complicated.

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