It’s been a “buyer’s market” for a long time when it comes to supply chain financing…now it’s the seller’s turn to celebrate.
Developing financing solutions for the B2B supply chain has become a focus for traditional financial institutions as well as for alternative financing vendors. However, the majority of these new solutions are dedicated to the buyer side of the transaction equation with seller-centric solutions running a distant second. Rarer still are solutions dedicated to dealer/distribution networks and their national account customers.
A new Spend Matters white paper, “Distributor Finance – a New Take on an Untapped Market,” sponsored by Corcentric, focuses on this issue and points to the rise in cloud-based e-commerce solutions as a way to mitigate the risks that have always been present in distributor network financing as it pertains to national accounts. The paper’s author, David Gustin, points out that until recently, supplier financing has basically focused on “the management of inventory holding costs at sales locations.” That’s resulted in two types of financing: Receivables financing, where the OEM is paid by the financial institution once goods are shipped to dealers; or dealer financing through loans or credit programs, backed in part by the OEM.
What has been lacking, till now is, according to Gustin, “A financing solution that supports the procurement credit relationship between OEMs, dealers, vendors, or distributors and their customers.” Instead of simply providing financing, these third-party solutions, enabled by cloud-based e-commerce platforms that connect all transaction parties, also provide full visibility into valuable data which will help grow sales for OEMs and enable dealers and distributors to better manage their cash flow. In addition, third-party solution providers often offer risk management or logistics support.
For OEMs, preserving relationships with National Accounts has meant a dependence on the structural and financial stability of its distributor network and their ability to get payment from buyers. As buyers try to extend their payment dates later and later, this can very negatively impact those on the seller side of the transaction, especially dealers who may be smaller and have less access to both the information and financing needed to maintain their business. This puts a heavier burden on an OEM already having to manage the complexities of dealer networks selling to national accounts. But that risk is mitigated with these new distributor finance solutions; the third party provider pays the dealer directly on an agreed-upon schedule and, at the same time, invoices the national account and collects payment form them.
This releases both the dealer and OEM from chasing dollars and potentially negatively impacting relationships with valued national accounts. What is especially valuable to the OEM, however, is the transparency and visibility into the entire dealer network and national account transaction activity in real time. This data can prove invaluable when it comes to future marketing, manufacturing, and sales decision making.
Gustin also relates how this same distributor financing can work for group purchasing organizations (GPOs), where multiple buyers (group members) purchase from multiple suppliers. Using the aggregated buying power of members, GPOs leverage that power to negotiate better pricing from a variety of dealers and vendors. But the need for visibility into transactional data and the assurance that sellers will be paid accordingly is that same as it is for the dealer/distributor networks.
This new approach, where data and documents flow through electronic B2B platforms and are available to all parties in real time, can literally transform distributor financing and benefit all supply chain participants.
Download the white paper to learn how the use of electronic B2B platforms can transform the supply chain.