Working Capital Efficiency

Today’s suppliers can’t wait for customers’ cash to come through before buying raw material, firing up the assembly line or loading up the cargo container. Financing is required every step of the way. Everyone depends on a steady and reliable stream of capital to keep the machines running.

But some companies in the chain may have an easier time accessing capital than others. A well established U.S. buyer might access a bank credit line at 1-2 percent per annum, while its smaller Chinese or Vietnamese supplier may be fortunate to get credit at 8-10 percent per annum. This disparity adds to costs and often affects the financial stability of valued suppliers. One solution is vendor financing, in which a buyer helps a supplier get credit at the buyer’s lower rate. In exchange, the supplier may agree to wait longer for payment. Continue reading