"Buy now, Pay early." Huh?

Recent reports all point to the increased pressure on working capital – for the supplier, to get paid early. For the buyer, to pay later. In some sectors, the supply base can no longer sustain long trade terms and payment extensions. How to solve this issue?

There is an opportunity to arbitrate for a middle ground. Buyers can be convinced to pay early in return for a discount. If suppliers feel that the discount rates are reasonable; if they are offered early payment as an option; and if they have the opportunity to lock in their receivable immediately, then they will view early payment as a good deal.

Traditional trade finance doesn’t tick all these boxes – discount rates can be between large and extortionate. Suppliers may be forced to commit their entire order book to a finance house. The may still have to wait for 10-15 days for payment. All of these issues make traditional trade finance a last resort.New, integrated financial supply chain models make early payment a viable alternative, even for business as usual receivables. A new report shows that 35% of all companies would always use early payment, if the terms were right. Of the rest, 65% would use it sometimes.Some buyers have lots of cash. Some have lots of debt. Some have lots of both. How can early payment be achieved for everyone? In some cases, external funding can be used to support a supply chain (the Supply Chain Finance model). Internal cash reserves can also be used – even in parallel with external funding. This can all be done to maintain and even improve Days Payables Outstanding (DPO) – and with no impact on the buyer’s Balance Sheet cash position.

Magic? No, but certainly clever.So. Buy now, Pay early? Yes, it does make sense.