Covid and the Supply Chain - Part 1

“Improvise, Adapt, Overcome”?

One of the raging effects of the continuing Covid?Pandemic;

is chaos in the Supply Chain.?

It’s Personal

This chaos ultimately affects the consumer and the survival of enterprises which provide the goods by which we express the meaning of Christmas with kindness to the other.?

“Financial logistics” can resolve the supply chain bottlenecks impacting the world.?Financial logistics are those that help finance the purchases of the inventory stuck on those giant container ships;

and on docks;

Have we reached the peak in Supply Chain bottlenecks? Evidently, it will take a while to fix these supply chain woes as economics drive a resolution, but the question is will your company survive the chaos in the interim?

Supply Chain Finance, part of the “full stack” of Financial Logistics, address the enterprise’s survival in these difficult times.

Supply chain finance and Dynamic Discounting are tools;

Like all tools, they can be used for their intended purpose when utilized by the disciplined, those possessing wisdom, experience, discernment and judgement. But regrettably, not all the flowers in the garden of Life bloom at the same time;

and therein lies opportunity;

on the road not taken;

but ageism still rages in America.?

Supply chain finance and Dynamic discounting allow a company to defer its bills, preserve working capital without holding more inventory and screwing their vendors.?

Just-in-time Inventory and Interest Rates?

Just-in-time inventory doesn’t work when your goods are afloat;

or demurred on the dock;

The problem is how do you pay for the inventory which is delayed and sitting aboard ship or on the dock??

Using supply chain finance tools allows you to extend how long you have to pay for goods, which provides the cash cushion a lot of companies need.

Interest Rates?

SCF is also a better use of cash reserves for enterprises whose balance sheets hold cash. The interest rates paid by banks for cash reserves are paltry when compared to the discounts achievable in SCF; from pre-payment of payables.

The Consumer

The rising cost of consumer goods; of gasoline, of food is already hitting our wallets and is indicative of what is to come as far as interest rates are concerned.?

Debt v. Accounts Payable?

The most important point in supply chain finance is that it is not debt. It is an accounts payable. SMEs, Small, Medium-size Enterprises, have limited capacity to put new debt on their balance sheets.?

So if I had a choice between extending my working capital terms and being more efficient with my working capital cycle; inventory, accounts receivable, minus payables, I want that number to be as small as possible.

If I were an MNC, a multinational corporation, I could borrow in the commercial paper market, but if you’re an SME, you cannot borrow in this market. The solution is not to increase debt.??It is to extend your payables; to preserve working capital and cash. But, if you export and are attempting to scale globally, how do you extend your payables and make better use of your cash reserves without screwing your vendors??

Solution

The solution is the “full stack;” the combination of U.S. Eximbank programs; guaranties, export credit insurance, SCF and Dynamic Discounting.?