As a result of the tough economic climate, many mining companies see extended payment terms as the quickest and cheapest solution to improve their cash flow position. Finance executives favour this approach as it allows the company to raise free cash at the expense of suppliers, who carry the cost of extended terms. Although term extension has a positive impact on the company’s balance sheet and income statement, it puts immense presume on suppliers’ financial health and critical buyer/supplier relations.
Some large suppliers may be able to absorb term extensions due to stronger balance sheets or being part of larger multi-national conglomerates. Term extensions will however have a serious financial impact on most suppliers, especially in the current economic climate. Many suppliers just don’t have access to additional facilities to fund extended payment terms. In response to term extensions, most suppliers will most likely request a price increase to mitigate the cost of funding additional working capital facilities. Not only will supplier relationships be impacted, but mining operational margins will be affected.
Some of the largest and most successful companies worldwide are turning to Supply Chain Finance to assist in better managing buyer/supplier relationships and ensure the financial sustainability of supply chains. The main benefits of a Supply Chain Finance program for suppliers are:
• Release cash tied up in unpaid invoices by exercising the option of getting paid immediately
• 100% of invoices can be discounted
• Get access to funding at a rate linked to the Buyer’s creditworthiness
• Get rid of expensive credit insurance
• Get access to a new line of credit, often at much lower interest rate.
• Suppliers get the flexibility to manage cash flows and risk during unstable financial periods.
A win-win situation
Implementing a Supply Chain Finance solution is a true win-win solution for large mining companies and their suppliers. The end result is improved working capital efficiency for both parties, enhanced risk mitigation, a potential reduction in cost of goods sold and improved supplier relations across the board. Best of all, Propell’s supply chain finance solution is 100% free of charge for large mining companies.
Propell, in partnership with PrimeRevenue, offer OpenSCi, the world’s largest multi-bank supply chain finance platform to companies in Africa. In 2015, $90b of invoices were sold by more than 60,000 suppliers in 70 countries. These invoices were funded by more than 60 funders, including three of the big four banks in South Africa.
To learn more about how Propell can help your business, please contact us at:
Email: firstname.lastname@example.org or Emuel Schoeman (Director): email@example.com
Phone: 021 940 8380