Everyone is a winner with supply chain finance
These uncertain times in the global market call for flexibility. But to be able to respond flexibly, it is essential to have large cash reserves available. Companies and their suppliers are coming to a head as they both seek to optimize their working capital. So, what’s the answer? Reverse factoring.
The German car industry was once the shining beacon of the stock market, and served as a role model for many other sectors. Thanks to superior engineering skills, the big corporations enjoyed fantastic growth, high profit margins, and expansion into more and more countries. Suppliers benefitted from the knowledge of experts in their field and gained loyal partners. One company’s ideas would fuel another’s, and vice versa. There was a time when an economic crisis in the sector was unfathomable.
But just a few years later, top managers at automotive manufacturers and suppliers started to become agitated. Companies have been rocked by the diesel crisis, the trade war is stepping up in the Asian and US export industries, Brexit is creating uncertainty in the European Union, and billions of dollars are needed to invest in innovations such as electro mobility.
Now, it is all about savings, leaner processes, and liquidity. Even in sectors with well developed supply chains and firm interdependencies between manufacturers and suppliers, nothing is possible without close cooperation based on mutual trust. This is true, not least for the automotive industry at the moment, but also for practically every sector – from the chemical and consumer goods industries to mechanical engineering.
Ultimately, it is about creating high cash reserves and low stock supplies. Investing smartly can work for companies and generate returns, despite the low interest rates. Liquid reserves are also needed for procuring at the right times, such as when the price of a raw material drops in the short term, therefore reducing risk and making procurement much more flexible.
Suppliers are also striving to create the highest possible cash reserves and optimize their working capital. Since the financial crisis, it has become increasingly difficult for SMEs to obtain a loan at an interest rate they can afford, as a result of new regulations for financial institutions, such as Basel III or the upcoming Basel IV, this makes issuing capital considerably more difficult.