The past year and all the challenges that came with it have resulted in a deceleration of cash flow across the supply chain, which poses tremendous risk for many businesses. Amid the global health pandemic, alternative liquidity solutions such as supply-chain finance and accounts receivable finance are playing an important role in improving financial health, minimizing disruption, and increasing resiliency for buyers and suppliers.

Cash flow is always an important piece to any company’s financial strategy, but even more so during times of disruption. The global health crisis has put a significant strain on cash flow for many businesses, and analysts predict the economic impacts will continue well into 2021. But the impacts of the current landscape aren’t exclusive to companies that have been hit with disruptions to their supply chains and slow payment cycles. Many others are facing cash flow challenges that accompany significant upticks in demand and industry transformation.

There is cautious optimism for economic recovery, but uncertainty still looms large — as do stiff liquidity requirements for navigating increases in demand and supply-chain disruptions. Financial resiliency is critically important right now, as companies strategize how to prepare for the unknown. For some buyers and suppliers, agility is needed to survive immediate cash flow challenges. For others, particularly certain sectors like industrials and manufacturing, liquidity is needed to stay competitive and keep pace with an accelerating rate of transformation.

This environment has led companies to explore new liquidity alternatives that provide material, fast access to cash without negatively impacting the balance sheet. Two solutions that are gaining considerable momentum are supply-chain finance and accounts receivable finance.

Supply-chain finance enables buyers to optimize working capital while offering their suppliers the option to accelerate payment on invoices, which is critical to fortifying the supply chain and ensuring supplier health. It gives suppliers a means to receive nearly immediate payment at a fraction of the cost of sitting on higher-interest lines of credit. Not only does this debt-free alternative improve cash flow for both buyers and suppliers, it also provides a sustainable source of liquidity to survive today’s challenges while funding tomorrow’s innovation.

Accounts receivable finance is another option that enables companies to trade their invoices for early payment. Suppliers can sell their invoices for early payment and, in most cases, without any involvement from, or disclosure to, their customers. Unlike traditional factoring or a loan, this option is a true sale of receivables, and doesn’t count as debt on the balance sheet.

Early payment will continue to play an important role in how buyers and suppliers navigate economic recovery and position themselves for future growth opportunities post-pandemic. For those companies that need immediate access to material liquidity without taking on new debt, early payment options such as supply-chain finance and accounts receivable finance provide a low-risk, low-cost solution.

Outlook

Broader economic volatility often breeds an unpredictable payment cycle and supply chain, and that risk will remain heightened for the foreseeable future. Not every company has substantial cash reserves or abundant access to low-cost liquidity to ride out the uncertainty ahead. Businesses on both sides of the supply chain must strategize which financial levers will mitigate risk in the supply chain and strengthen the balance sheet.=

Nathan Feather is Chief Financial Officer with PrimeRevenue.