Financing the Chain

by Ralf W. Seifert and Daniel Seifert
International Commerce Review , March 2011
Ref ICR101C
 

chain

Good supply chain management can create competitive advantage - but a lack of financial coordination between customers and suppliers can limit the benefits.

Collect early, pay late' is still the common mantra, forcing suppliers to wait until the customer chooses to pay. As a result, all efforts tend to be concentrated on reducing working capital to improve profitability. Yet the evidence shows that antagonizing suppliers by paying late can be self-defeating. Time for a different approach to the whole business of trade credit, perhaps? Time, in particular, to consider reverse factoring techniques? Research shows that companies using reverse factoring reduce their working capital by an average of 13 percent, and enjoy other significant benefits as well.

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About the authors

Ralf W. Seifert is a Professor and director of the Mastering Technology Enterprise (MTE) program at IMD, Switzerland

Daniel Seifert is a Consultant at McKinsey & Company Inc.

 

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