The $450 Billion Supply Chain Cash Flow Opportunity
“Problems with cash flow are one of the main reasons why many startups and businesses fail.” Pierre Carlo Curay, Country Manager of OpenPort Philippines, said when sharing his thoughts on the current supply chain business landscape. A 22-year IT and logistics veteran, Pierre is a director for the Supply Chain Management Association of the Philippines and has served as an entrepreneurship mentor for the Department of Trade & Industry and Department of Agriculture. He estimates that nearly half of all SMEs – which constitute 70% of the global supply chain – experience cash flow challenges.
SMEs supplying large businesses and multinationals are commonly paid anywhere from 30 to 120 days after delivery of their goods when credit terms and settlement processes are accounted for. These volatile numbers are reliant on unstable processes: has the customer change their procurement policies? Were the goods delivered on time and in appropriate condition? Did the transporter encounter technical or operational difficulties? Will the invoice be disputed? On the other end, these same small businesses are often forced to pay their own vendors with cash upfront as they don’t have the credibility yet to pay on terms.
This places small businesses between a rock and a hard place and is a major reason as to why failure rates are so high for businesses. To put it into perspective, a monthly purchase order of $1 million that will be paid in 30 to 120 days will need a working capital of $1 to $3 million to execute. Consider the additional delays, disputes, and reconciliations caused by the processing that occurs on 5% to 15% of deliveries and suddenly the cash flow problem balloons into an issue that bottlenecks overall operations and massively hinders any business’s ability to grow.
Banks and FinTech companies are now considering this as a $447.8 billion opportunity for the supply chain finance market (World Supply Chain Finance Report, 2018). However, financing unproven SMEs is still a huge risk for investors which boils down two hard choices: very high financing costs or no financing at all.
This is what OpenPort’s irrefutable digital Proof of Delivery is trying to solve. “Using our technology to validate deliveries and prove that orders are served completely, the risk of financing is greatly diminished” said Pierre. Information is readily available from purchase orders, to the time and place of pick-up, the route taken, stakeholder settlements, and delivery confirmation. The blockchain-enabled platform gives stakeholders an unprecedented amount of visibility and traceability, providing opportunities like cheaper rates and faster funding that were not possible with legacy systems.
“Mitigating risk and allowing small businesses more favorable rates for financing is a win-win situation for the entire supply chain” Pierre added. Shippers benefit through maintaining terms and good ROI thanks to efficiency, SMEs can access working capital at rates that enables their operational and business growth, and banks and fintech companies benefit from the lower risk, allowing them to serve more of the SME market.
At OpenPort we are committed to solving the supply chain cash flow problem by tackling its root causes. With a strong community of financial partners that help us help our clients, we believe that that the future of cheaper and faster supply chain financing for SMEs is now arriving.Back to Blog Archive