• Show Me The Money: How Corporate Cash Hoarding Is Stalling Growth  
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Show Me The Money: How Corporate Cash Hoarding Is Stalling Growth

There is a troubling trend in the modern world of corporate trading. Nearly five years on from the Great Recession and the economy remains frail, businesses are collapsing left, right and center, and many people still can’t find work. Having said that, the biggest companies around the globe are still reporting record profits year-on-year, so the money is still there – it’s just being stuffed under the mattress.

Indeed, Network World reports of 15 companies with huge cash piles, including Microsoft which, as of last year, is sitting on a cash and cash equivalents pile of $77 billion, and Google with a stash of $54.4 billion. These cash-rich companies, and many more like them, are clinging on to record amounts of cash, instead of reinvesting it and thusly releasing value across the economy.

Today, global enterprises rely more than ever on a complex network of suppliers and partners, but a culture of late B2B payments is hampering in particular SMEs (Small and Medium-sized Enterprises) and the larger economy as a whole. Research has shown that over half (57%) of international businesses admit to having purposely delayed payment to their suppliers in the last 12 months.

Keeping Business Engines Running
When profits are not readily recycled through the economy you can almost hear the economic engine sputtering and faulting. Funds need to be flowing between buyer and seller, between employers and workers, between businesses and investors – this is the fuel that is required to keep the engine revved up and running.

Cash hoarding is considered normal practice by many companies, and is perhaps even understandable in the present financial climate. However, maintaining a rife cash flow throughout the supply chain is essential to a healthy, growing, economy, which we’re all a part of. Late payments can severely impact individual organizations, and, as we have seen in the recent credit crisis, if too much financial pressure is piled onto a judicious supplier in a value chain, it risks collapse, which results in much more critical problems around the economy as a whole.

Responsibility Lies With Businesses
Businesses have a responsibility to one another and to themselves to release value and keep the money moving throughout the economic networks in which they participate, and they know this, as the research showed:

  • 88% business agree that the poor practice of late payments should be overhauled
  • 90% acknowledge larger repercussions in the economy as a result of stalling payments

However:

  • 74% of businesses adopt the attitude that late payments are a simple fact of business life
  • 57% admit to having actively delayed payments to suppliers themselves

Payment Terms Not Enforced
The recurring problem is that payment terms aren’t enforced, and only one quarter of businesses have integrated highly automated e-invoicing and e-payment processes which enable the payments to pass through supply chains efficiently. This number needs to increase, and large corporations should be doing all they can to onboard all of their suppliers – especially SMEs – into Supply Chain Finance (SCF) processes.

The ability for a company to, for instance, pay its staff and manage its investments all depends on its cash flow. As the financial gap widens between suppliers and buyers, more and more cash-poor suppliers experience cash flow issues which lead some into bankruptcy and failure. The disruption this can cause in the supply chain affects all concerned, including the buyers, as operations are disrupted, which costs in sales, brand equity, and ultimately, reputation.

Solutions
But there is no need for such a risk. Investing in the supply chain up front prevents collapse on every level. These are real concerns, especially for SMEs, and the solution lies in the wider spread usage of the likes of e-procurement and e-invoicing across business networks.

Electronic invoicing opens up the possibility for suppliers to offer early payment discounts to buyers. These, of course, can be offered in traditional forms of invoicing. However, the invoice processing cycle of a large corporation can literally take weeks or months to approve and complete, therefore early payment discounts have been a rare occurrence. E-invoicing compresses the process so that it becomes almost instantaneous.

Achievable Early Payment Goals
Early payment discount programs can be integrated into a company’s terms of payment model, which, when both parties are participants in an e-invoicing program, can be very achievable. The value of an early payment can be huge to a SME – getting cash sooner relieves their cash flow needs, and since many small businesses ultimately fail due to cash flow issues, addressing this will improve economies overall.

Discounts are, of course, always attractive no matter what size of a business, and with the wide deployment of e-invoicing systems across larger business networks, cash flow can continue to be managed in a more collaborative fashion, and the common practice of late payments may one day be brought to an end.

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