As the coronavirus crisis hurts cash flow, Corcentric advises to focus on tech solutions that help people

The coronavirus outbreak has required a sweeping plan of social distancing to stem its spread, and people have responded by staying home and limiting their exposure to others. That helps public health, but it is disrupting businesses around the world.

With unprecedented shocks to supply and demand across most industries, businesses will need help with finances as the crisis disrupts cash flows and constrains working capital. The shuttering of offices across the world is also compromising back-office AP and AR processes — especially for those behind the curve in automation.

To learn more about how businesses can keep their doors open and their trucks rolling, we talked with the procurement technology provider Corcentric about what it’s seeing as it helps clients handle transactions, pay suppliers and get paid with solutions like supply chain finance (SCF).

“Corcentric hopes that every business understands this situation first as a human problem. This isn’t a breakdown in the financial system like in 2008, or a failure of ‘dot.com’ technology to deliver profitability that led to that bubble bursting 20 years ago. This crisis is personal,” the provider said. “Approach your customers from the perspective of solving professional problems to help their personal lives.”

Q&A

What is Corcentric seeing in this initial reaction to the coronavirus disruption?

Corcentric: Within the source-to-pay (S2P) cycle, B2B buyers are having tremendous difficulty sourcing certain indirect spend categories such as personal protective equipment (PPE) and sanitation materials, and manufacturers in those same areas are facing a combination of raw materials shortages and production capacity that cannot meet demand. Organizations with manual AP and payments processes are straining their supplier relationships due to inaccessible offices where paper invoices and checks would be managed. Suppliers are understandably nervous about credit risk exposure in this environment, and customers with manual AP processes exacerbate the challenge that suppliers face in managing risk and controlling cash flow.

The order-to-cash (O2C) cycle is seeing a similar set of challenges stemming from manual, non-centralized processes. B2B sellers with a preponderance of non-electronic order management, invoice presentment or payment processes are seeing real impacts on cash-flow quality, access to working capital and control over customer credit risk exposure. B2B sellers in the worst cash-flow positions are increasingly looking at tools such as receivables financing and other sell-side supply chain finance (SCF) options to mitigate the damage to cash flow from rising days sales outstanding (DSO).

Do you think that the Fed’s actions of cutting rates and other government stimulus will help businesses of all sizes? Or do businesses have to rely on other methods to ensure that they have access to capital?

The Federal Reserve could cut rates all the way to zero (or theoretically even lower than zero as is the case in Europe and Japan), but in our opinion, it may not catalyze B2B or B2C activity in a pandemic environment. Lower financing costs will help CFOs manage their balance sheets, but lower rates will count for nothing if financial institutions are unwilling to lend in this highly uncertain environment. Recently passed stimulus in the U.S. is primarily geared toward helping small business, air carriers and other businesses with a role in national security.

The broader middle market of U.S. and global businesses are in a position where government intervention isn’t directly impactful, and their ability to take advantage of lower borrowing costs is in jeopardy. They must do everything possible to maximize working capital and protect cash flow. On the buy-side, AP departments can help lower their organization’s costs by pushing suppliers for more lucrative early payment discounts.

Many suppliers will pay a higher premium now for access to cash flow. Businesses not in a position to accelerate their supplier payments, where their own cash flow is suffering, should utilize supply chain finance wherever possible to extend payment terms. If their cash flow is suffering, it is because their DSO is suffering, and SCF tools to extend DPO can bring balance back to the treasury function.

Supply chain finance is often thought of from the buy side, but why is it important for suppliers to be considering it now?

SCF tools solve the cash flow and working capital needs of buyers, suppliers or both at the same time. Buy-side options are oriented around extending terms for the buyer while allowing the supplier to receive cash within their standard terms. As we mentioned, middle market B2B buyers could be making a fatal error if they don’t avail themselves of these tools right now.

This is a unique situation, however, and suppliers in many industries are seeing sales move to polar extremes — either massive contraction or a record-level surge. Passenger transport, automotive, hospitality and many manufacturing categories fall into the former, and consumer packaged goods (CPG), grocery, home entertainment, healthcare and food wholesale are among those in the latter. In both cases, suppliers must utilize sell-side SCF wherever possible to preserve cash flow. Those in contraction will need to accelerate cash receipts to have liquidity for debt obligations and, in the extreme cases, to avoid insolvency. Those seeing record surges in sales will need liquidity to pay for raw materials, personnel and other production costs.

Many suppliers offer their buyers “buyer-led” flexibility to extend payment terms in exchange for a fee, or to receive a discount in exchange for paying early. In a “normal” world, it’s fine for suppliers to leave it to the buyer to decide to use these options. But in today’s environment, suppliers have to take greater control over their cash-flow performance. Corcentric advises suppliers to consider a global approach to their receivables portfolio through tools such as reverse factoring, where the supplier offloads some, if not all, of its receivables to a third party in exchange for a fee for receipt of accelerated payment on a non-recourse basis.

What technology does Corcentric offer to suppliers to help with financing and billing for things like fleet and warehouse procurement?

In addition to our industry-agnostic S2P and O2C technology and managed services, Corcentric has a long-standing specialization in commercial truck and warehouse procurement. We maintain pre-negotiated procurement programs with over 160 suppliers in these categories, and we have a robust field sales structure across the U.S. and Canada.

For fleet maintenance and warehouse procurement, we bring together the pre-sourced programs with cloud-based billing and supply chain finance. Buyers gain access to industry-best pricing and electronic billing for national account purchasing at dealers and distributors, and Corcentric sits in the middle of the financial transaction as well. We provide the buyer a line of credit with their suppliers, collect payment from the buyer and pay the supplier on an accelerated, non-recourse basis. Overall, we manage the physical, financial and informational supply chain on behalf of both the buyer and the seller. It is a model that is proving exceptionally valuable in this environment — especially with trucking and warehousing playing such a vital role during the pandemic.

How is SCF technology different from SCF funding, and why is this distinction important?

The market is replete with SCF software that serves the buy-side and/or supplier-side. Usually, the technology is only a tool for communication of, and visibility into, the SCF options being presented by one party to the other. For example, an SCF technology vendor might offer software to a B2B seller to create and communicate invoice financing options to its buyers. It could also allow the buyer to select invoices to factor to a third party, allowing the supplier to receive payment on time and the buyer to pay the third party under extended terms.

These technologies are different from the cash itself — the funds to enable the SCF option desired by the buyer or seller. Technology-only vendors must partner with a bank or other third-party funding sources to enable the SCF activity; in some cases, it’s left to the supplier to “self-fund” the SCF options presented to buyers, or to provide the bank or third party funding source.

The distinction is important for two reasons. First, it highlights the potential complexity for a B2B buyer or supplier to stand up an effective SCF program. Second, it underscores a viewpoint that Corcentric holds in both the source-to-pay and order-to-cash solution arenas — that technology alone can only get you so far in optimizing those processes. An optimal S2P or O2C provider will employ a tailored mix of technology, transaction financing and managed services. In SCF, B2B buyers and suppliers should find a technology provider with the ability to sit in the middle of the transaction with the funding itself.

What advice do you have for businesses as they try to weather the coronavirus over the next few weeks and in the coming months?

Corcentric hopes that every business understands this situation first as a human problem. This isn’t a breakdown in the financial system like in 2008, or a failure of “dot.com” technology to deliver profitability that led to that bubble bursting 20 years ago. This crisis is personal. Your employees and customers need tremendous empathy right now, and many organizations aren’t that great with personal empathy. Approach your customers from the perspective of solving professional problems to help their personal lives.

We believe the base case for COVID-19 in the U.S. and Europe will be at least one more month of propagation “on the curve.” At least one or two subsequent months of “flattening” will be necessary before meaningful recovery in consumer behavior, general manufacturing and travel will be possible. Middle-market businesses will truly be stuck “in the middle” — lacking the stimulus attention being provided to small businesses, and without the balance-sheet strength of a Fortune 500 to safely weather months of depressed sales. Whether looking at this crisis from the perspective of S2P or O2C, they should use every technology and tool available to protect cash flow and preserve working capital.

This Brand Studio post was written with Corcentric.