Cash-rich companies are starting to spend again-both on buying up cheap assets and on repurchasing shares, according to a number of media reports. But they also continue to use that cash to more effectively manage their supply chain, reduce cost of goods sold, and ensure supplier stability.
Enrico Camerinelli, senior analyst at Aite Group, says that very large corporates that are cash rich are not ready to put money in bank deposits, but still want to put it to good use. "They are looking at ways to use this cash to ensure business continuity, particularly by helping suppliers still in difficult situations without access to bank funding," Camerinelli says.
He points to the examples of Siemens, Wal-Mart, Sainsbury's in the UK, Hewlett Packard and IBM, who are all using excess cash to subsidize or help out their suppliers in one way or another.
As small firms still face a tough battle getting funding from banks, their corporate partners have been stepping up to the plate to help them better manage working capital. Camerinelli says: "Improving working capital and streamlining operations to ensure any waste is avoided is also an imperative for small corporations."
One key way that large corporates can help with this is by paying suppliers sooner and on a more consistent schedule.
This aids suppliers in better forecasting cash flows-which is an essential job right now, plus it reduces their days payables outstanding (DPO)-which means they have more cash to work with sooner in their working capital cycle.
In addition, companies can provide longer-term supply schedules to help their vendors better manage inventory and reduce unnecessary inventory spend.
From a large corporate perspective, the advantages are two-fold. Not only does it create a more solid and secure supply chain and a tighter bond with key vendors, but by paying them sooner you can take advantage of existing discounts and negotiate better discounts with big suppliers.
Given the benefits from the supplier side, most will be very open to discount discussions.