A “rebound” in global trade is underway, and the U.S. and China are the big beneficiaries, according to a new report from Tradeshift. For suppliers, however, the news isn’t all good.

Tradeshift’s Q1 Index of Global Trade Health, which measures purchases, orders and invoices in B2B activity, shows total transaction volumes improving by one point over the previous quarter, and three points shy of the anticipated range for the first quarter of 2024. And while that result seems underwhelming — it was the ninth straight quarter of growth falling short of expectations — Q1 marked “the third consecutive quarter of upward momentum after a prolonged period of sluggish activity,” Tradeshift said.

While global trade overall appears to be “inching closer to a recovery,” the U.S. and China saw “robust” growth in the first quarter. China looks to be on a recovery curve, after prior momentum “petered out alarmingly” in the second half of 2023. According to China’s official Manufacturing Purchasing Managers’ Index, the nation’s manufacturing sector ceased to contract for the first time in six months.

The U.S., meanwhile, kept on gaining momentum in the first quarter, with total trade registering one point above the baseline. Order volumes were a full seven points higher than expected, matching growth in the prior quarter, Tradeshift said.

Bottom line: Tradeshift sees “growth coming in part from an uptick in demand across the manufacturing sector, where trade activity tipped back into the expected range for the first time in a year.”

That’s good news for traders in general, but suppliers, after several years of being buffeted by uncertain demand and stretched-out payment terms, thanks in large part to the COVID-19 pandemic, aren’t in the clear yet. Along with signs of sustained recovery in global trade comes continuing liquidity challenges. Simply put, many buyers are still slow-paying their suppliers.

In tough economic times, they may have little choice. High interest rates and restrictions on bank lending are restricting the ability of businesses to finance new orders, Tradeshift says. Growing trade tensions around the world are further causing traditional banks to cut back on trade financing or at least tighten lending standards.

“Pressuring large organizations to pay their suppliers quicker may seem rational,” the Q1 report says, but the reality is that businesses rarely pay their suppliers late out of choice.”

That’s cold comfort to suppliers. “Cash flow is akin to fuel in supply chains, and a lot of suppliers will be running on empty after two hard years,” Tradeshift chief executive officer James Stirk said in a statement. “The longer suppliers have to wait to turn invoices into cash, the greater the likelihood that an influx of new orders starts to outpace the availability of working capital to fulfill demand.”

Since the COVID-triggered worldwide lockdown in the first quarter of 2020, the average time for settling supplier invoices has “steadily increased,” according to Tradeshift. And while the trend appeared to have peaked in the third quarter of 2022, when payment times were 16% higher than the historical average, businesses today are still taking an average of 6% longer than before the pandemic to pay suppliers.

“The genuine risk here is that the influx of new orders could outpace the availability of working capital to meet demand,” Tradeshift says. And even though payment times are expected to keep shrinking over the next six months, “this may not be fast enough to prevent fulfillment issues from hindering the overall pace of recovery.”

The report’s sampling size is large enough to suggest that the problem is real. Tradeshift measures B2B purchases, orders and voices to the tune of 2.5 million to 3 million transactions per month, notes company co-founder Gert Sylvest. Within its global trade network, the time to pay an invoice “is coming ever so slightly down,” to around the 34-day mark, he says. 

Other suppliers report experiencing payment terms of 90 days or more. Some have even complained about having to wait 100 days or more for compensation, forcing them to seek alternative financing options, such as early payment in exchange for a discount off the invoice.

In a time of economic recovery, are buyers looking to make longer payment terms permanent? “I don’t think they were ever normalized between COVID and the previous financial crisis,” Sylvest says. “We see buyers institutionalize these terms through supply chain finance and dynamic discounting programs.”

The word “dynamic” has more of a positive connotation for buyers than suppliers, the latter of which are agreeing to accept less than the negotiated price for their goods and services. Sylvest calls the practice “just one of those tools in the box,” one that’s mostly deployed among the largest suppliers, who might get access to working capital at a lower rate than is available from other types of lenders.

Supply chain finance is far from new, but it’s gaining popularity as an alternative means of providing liquidity to struggling suppliers, Sylvest says. In newer versions of the program, there might be multiple funders in the mix, relieving buyers of the sole responsibility for repayment. He also expects to see a surge in purchase-order financing, especially for smaller entities and serviced “in a more digital fashion.” 

The recent rise in interest rates is making receivables- and P.O.-based financing a lot more attractive, Sylvest says. “It means suppliers have fewer alternatives for effective credit. We’re still seeing very high rejection rates from institutions and banks.”

Help may yet be on the way. New types of “data-driven” invoice financing employ a wider range of information about trade histories and buyer-seller relationships, to better assess the risk of a seller being unpaid or underpaid, Sylvest says.

As seems so often to be the case, the early winners in an economic recovery are the biggest players in global trade. “It’s been a constant over many decades,” Sylvest says. “The World Bank and U.N. have pointed out that when there’s a credit gap and volatility, politically and financially it’s always the small to medium-sized entities that get hit the hardest. Lenders adjust credit policies to the stricter side. So having access to data-driven financing — looking at actual trade and relationships — could have a profound effect.”