For many suppliers, the idea of a fiscal cliff is nothing new. From the collapse of 2008, to the credit crisis that followed, to a period of slow recessionary corporate spending, to seeing their payment terms extend by 30, 45 or 60+ days in some cases (see InBev’s 120 days terms!), suppliers have been facing, falling off and climbing back up fiscal cliffs for the past four years!
So, while the potential effects of the fiscal cliff (or actions taken to avert it) will certainly impact SMEs, the more immediate need is a rope with which to climb the cash flow cliff caused by long payment terms and accelerate payment on goods and services delivered. I was reminded of this by an article in Inc.com that I read this week that gave some advice to suppliers on “How to deal with customers who drag their feet when it’s time to pay up.”
The author referred to some statistics from the Kaufmann Foundation stating that 14% of suppliers had trouble getting paid on time in 2010 compared to just 2% in 2008. This fits with some research from the Aite Group that we will share in a webinar on December 5 which shows that suppliers in Western Europe report ~30% of their B2B invoice value is overdue! Clearly suppliers need to think about creative ways to get paid on time, not to mention accelerate that payment! And while the author put forward some good ideas to help SMEs avoid customers with a propensity to pay late and to be specific about terms of payment, I think he misses one of the most powerful steps a supplier can take to ensure payment visibility, certainty and even acceleration: Join the Networked Economy!
By doing business with their customers electronically and leveraging business networks – which enable new, more collaborative forms of finance, SMEs can gain:
- Real-time view into their invoice approval status, so they can quickly identify errors or hold-ups that would ultimately delay payment in the paper world.
- On-demand visibility into payment status and timing as soon as the invoice is approved and payment is scheduled.
- The ability to actually accelerate payment and pull cash flow forward at the click of a button through dynamic discounting and receivables financing.
SMEs who use the Ariba Network have been reaping these benefits for years and as a result, have been able to lessen the impact of fewer traditional sources of capital and even grow their businesses while avoiding debt by using these tools.
For example, accessing real-time insights into invoice approval status available on the Ariba Network, Mediafly, a fast-growing mobile marketing solution provider, has been able to not only view its outstanding invoices and know when they’ll get paid, but also to make offers to secure early payment. Medifly CFO John Evarts says such network-based ‘dynamic discounting’ has helped him manage the business differently: “We can now get access to capital at favorable rates when we need it, allowing us to hire new developers so we can take on new projects and grow the business.” Speaking at the SAP Small and Medium-Sized Enterprise (SME) Summit in New York City last week, Evarts said the transparency and control afforded by the network has even helped Mediafly put off the need to take a new round of funding.
And THAT is the Networked Economy in action.
As Mediafly demonstrates, business networks aren’t just a rope that SMEs can grab tos ecure themselves as they trudge up the cash flow cliff of late payments, but an elevator to the top. And as fiscal uncertainty continues, more companies are likely to hop on – and enjoy the ride.