Businesses looking to improve cash flows often delay payments to suppliers – sometimes for longer periods than suppliers can practically tolerate. According to data quoted in The Economist, 47% of suppliers surveyed are affected by this problem. Left unchecked, it’s not hard to see how this practice leads to friction between suppliers and buyers.
Originally provided by banks to bridge payment gaps in manufacturing and retail, and aimed only at the buyer’s large and strategic suppliers, supply-chain financing solutions are now emerging that enable suppliers to get paid quickly, buyers to extend their payment terms, and for the funder to provide financing cost-effectively to the whole supply chain. This is what Tungsten Network is now pioneering in our market place. The service is administered by Tungsten, financed by either dedicated funding partners or the buyer’s own banks in a plug-and-play model, and offered directly to the suppliers as part of their network services.
Suppliers are paid in a matter of days after submitting an invoice, in return for a small discount on the invoice payable at a rate that is not available from their normal banks. Lenders, in turn, collect the entire invoice amount from buyers, ensuring that suppliers get paid in a reasonable timeframe. Buyers benefit from longer payment terms, freeing up their cash flows.
Tungsten Network provides a one-stop shop for both buyers and suppliers, further enhancing the trading relationships in our network. The resulting reduction in friction across all parties in the supply chain is an innovative example of a “win-win-win” situation in the business payments process.
KPMG has found that over 70% of businesses worldwide still do not participate in a supply-chain financing program. Tungsten Network’s Prabhat Vira says that 80% of the suppliers Tungsten serves are small or medium-sized enterprises, suggesting that, coupled with the increased complexities of global trade, the need for supply-chain financing is greater than ever.