Ariba and The Receivables Exchange - Shoring Up the Weakest Link
With credit remaining tight, there is still considerable liquidity risk throughout most supply chains. But there is something that can be done about it, and I'm glad to see that some vendors, like Ariba, are making it easy for buyers to help their suppliers. Even though traditional banks might not be very helpful in these troubled times, there are a lot of new, innovative, lenders out there that will happily do short term financing, for much more reasonable rates, with assurances that they will be (re)paid within a guaranteed timeframe. This means that if a buyer is willing to commit to payment in 30 days, a cash-crunched supplier can get much needed liquidity in as little as a single day.
In addition, as I indicated in my last post on The Receivables Exchange, the supplier can completely control the process. The supplier can define the minimum advance required, the maximum transaction fee it will pay (for a 30 day advance), preferred "buy it now" financing requirements, and the auction start time. If the request is reasonable, the receivable could be bought in 15 minutes and money wired to the supplier's bank account the next day.
Furthermore, according to this recent article on shoring up the weakest link in Treasury & Risk, trades often happen in as little as 15 seconds and sale of a $1 Million receivable will often occur within 15 minutes. Sellers who cherry-pick their receivables from investment-grade customers often find that 85% will be bought at their buy-out price.
Furthermore, if the supplier happens to be on the Ariba network, the supplier can quickly shunt receivables with all of the necessary supporting documentation onto the Exchange, simplifying the process even further. Plus, they can do so after evaluating what discount the buyer has offered for early payment, allowing the supplier to make the best possible decision.