It has been widely reported that P&G has extended payment terms with its suppliers. Extending payment terms will free up a material amount of the company’s cash. P&G is not the only investment grade consumer products company that is utilizing this type of financing. Several other large companies such as DuPont Co., and P&G rivals Kimberly-Clark Corp., Church & Dwight Co., Energizer Holdings Inc., and Newell Rubbermaid have recently implemented similar deals, working with banks to extend payment terms in order to accelerate the manufacturers’ cash flow, a practice that is referred to as ‘supply chain finance.’
‘Supply chain finance’ has become the new nomenclature for an age-old means of obtaining working capital – widely known as factoring and/or reverse factoring in most circles.
Regardless of the name, ‘supply chain finance,’ or factoring, is critical in our current economic climate and should be more widely used by non-investment grade customers of varying sizes.
Non-investment grade companies can and should be working with non-bank lenders (factors), which are willing to underwrite their trade credit risk and extend payment terms. For these types of companies, it will accelerate the cash flow that their suppliers require and free up critical working capital.
The bottom line is that under the guise of ‘supply chain finance,’ large companies are confirming that factoring products work and can be strategic to achieving business goals. It is now the responsibility of non-bank lenders to step up to the plate to implement these types of programs to help companies of all sizes take advantage of these programs to help revitalize our economy.
Andrew Tananbaum is the Executive Chairman of Capital Business Credit LLC (CBC), a commercial finance company specializing in providing creative supply chain financing solutions to the retail sector.