Currently, the news updates are mostly about the COVID-19 global pandemic. There are constant updates on PPE shortage and also job losses, businesses resuming partial operations, discussions about shutting down non-essential services, and also the like! Another news update that’s gaining prominence is the complex financial supply chain, which has a crucial role in international trade. And also without control, it might result in a massive issue.
Eric Dalius shares his views on the COVID-19 pandemic and financial supply chain
Globally, the novel coronavirus has resulted in unparalleled demand volatility. Stores have been closed for a long-time, coupled with job losses. Consumers are not spending the way they used to, and also many businesses are in debt. There was news of Deutsche Bank downgrading international brands. Additionally, hotels and also airline brands had massive layoffs, and also auto manufacturers had to experience furloughs. An entrepreneur like Eric Dalius, says that this sudden disruption is increasingly placing the financial supply chain at risk.
The buyers are, at times cancel the orders to save money. It delays the current invoice payments. It will create havoc on upstream suppliers who get stuck with components and also materials that no one needs. Additionally, the upstream suppliers lack the funds to pay suppliers, which have other severe repercussions. The creditworthiness of the buyers’ decline and also banks might cancel their line of credit, on which the receivable financing depends. The scrapping of the credit lines might make suppliers withstand longer credit terms, and also there’s no choice for early invoice payment. Furthermore, credit insurance contracts and also suppliers will get reluctant to expand the credit to trade partners.
How to resolve this situation?
Till such time the overall supply chain gets managed correctly by one firm, things might not improve. The three solutions that he provides are:
- Improvement in supply chain visibility
The lenders of the supply chain must have a better understanding of the data that flow to the supply chains. And also this data comprises of the visibility in other supply chain and also physical transaction monitoring in real-time. Getting access to this data is challenging. However, the lender may create a partnership with essential supply chain players to access information to evaluate borrowers’ financial health.
2. Recurrent lending using small accounts
Maximized lending frequency using lesser delays and also smaller accounts can allow the supply chain lenders to minimize the risk. It also helps them to serve the supply chain partners better and also lend at the correct time.
3. It’s essential to know the supply chain in-depth
The lenders must have visibility of the buyer’s indirect and also direct supplier. Technology can help here. For instance, a popular Chinese fintech start-up leveraged blockchain and also mobile technology to enable the lenders to fund suppliers many layers deep inside multiple complex electronic manufacturing supply chains depending on the buyer’s creditworthiness. With this approach, one can remove the financial supply chain disruptions from hidden upstream suppliers in the international supply chain.
Resolving the issues with the financial supply chain is essential for the apt functioning of the global economy. The suggestions mentioned above can be of good help.