Please Stop the Kvetching Over Early Pay Programs

Ellen Leith’s post in Procurement Leaders, Stop Paying Suppliers Late And Offer Them Choice, which I recently commented on earlier in the week, features the usual business and trade media complaints over what some might think is a zero-sum game in trade financing (supply chain finance, invoice discounting, etc.).

Free Research Report: A Supply Chain Finance Game Changer

To this end, she Leith notes that, “much has been made of the supply chain finance offers on the table from the corporates – but again this can only work if it offers enough benefit for both parties. If the bank charges are punitive, or if the supplier is not able to access the bank finance available, the fact that it is offered by the company is not much help. Neither should the introduction of a supply chain finance scheme be offered as a sweetner(sic) for drastically increased payment terms.”

I agree with Ellen on her earlier points. But she’s dead wrong on the last. If we extend the definition of “supply chain finance scheme” to broader trade financing, we should be doing so because true SCF only encompasses a piece of the receivables and payments financing options. And we can get clever with how we design programs to truly create structures where a “scheme” with extended payment terms actually brings suppliers out on top.

There are mounds of early data to show that even large corporates want to take reasonable discounts. And when payment terms are extended with provision for early payment added at reasonable terms, everyone can come out on top when done right – treasury, investors, procurement, supply chain and, of course, suppliers. This is especially true for smaller suppliers.

As both a student of the space and a small business owner, I can honestly say that folks like Ellen no doubt mean well by their commentary, but until they have had to have their own controller have to follow-up on an invoice half a dozen times that is already 45 days past due from a major corporation, they lack the empathy to understand that a reasonable discount even with extended payment terms is a godsend for a small business provided it is consistently available.

It is easy to vilify big corporations for extending payment terms. But the real villain is in fact the black box of AP within these companies. If we can create transparency within it and add in financing mechanisms, believe me, both suppliers and buyers come out on top.

To understand all the options for trade financing and early payment, we encourage you to read Trade Financing Matters and our expert subscription coverage of the topic on Spend Matters PRO.

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