By enabling prompt payments whilst extending your DPO, our bank-independent solution helps you free up the capital you need to fuel business growth.
Managing a healthy balance between liquidity and good supplier relations can be a challenge for many businesses. Both you and your suppliers are focused on optimizing working capital, particularly during uncertain economic times, and this can naturally lead to a conflict of interest. You want to hold on to cash and increase your DPO; your suppliers want to receive payment as much as possible.
The success to date of the Prompt Payment Code, currently with more than 1,800 signatories, demonstrates a growing commitment to driving a culture of better payment practice. According to Minister for Small Business Margot James, and Philip King, Chief Executive of the Chartered Institute of Credit Management, the Code has been ‘hugely successful in achieving fast settlement of invoices, creating dialogue between parties, improving contract terms, and providing constructive assistance welcomed by suppliers and signatories alike’.i
This move towards increasing dialogue and co-operation between buyer and supplier has been a long time coming: without clear standards of practice (and implementation), invoice payment could vary from immediate to indefinite. But what tools are available to you as a buyer, to support your position in the supply chain?
American Express developed Working Capital Solutions to help businesses diversify their capital resources without the need for external financing. By leveraging your billing cycle to extend your DPO, you can reduce your supply chain liquidity risk and optimise your cash flow.
How it Works
This is how it works: your supplier gives you the option to pay via American Express using a secure online payments platform. Upon receiving an invoice you provide approval, and the supplier draws down the funds on your account, receiving them within 4 banking days. You then pay American Express - with a payment period of up to 55 days.
In short, your supplier has reduced their receivables whilst you have enjoyed a flexible payment option, resulting in a win-win supply chain relationship: the perfect springboard for increasing dialogue and improving contract terms. We have seen this solution deliver real benefits to our business clients across various sectors.
For example, the privately owned UK IT distributor Westcoast have found access to capital challenging since the 2008 banking crisis. Operating in a risk-averse market with suppliers typically offering short credit terms, they needed to avoid cash flow gaps and ensure they could consistently meet market demand.
Westcoast’s Finance Director, Sunil Madhani, says that for them positive cash flow is absolutely key: ‘It allows us to generate cash, which we can then use for other activities that benefit not only our suppliers, but also our customers, and helps us to grow’.
American Express Working Capital Solutions offered an alternative payment system that was straightforward and complimented Westcoast’s existing operations, making cash available for longer than with traditional invoicing. Our payment period of up to 55 days is considerably longer than their conventional arrangement with suppliers; this debt-neutral capital facility increased DPO and enabled Westcoast to buy at competitive prices and meet customer demand.
By increasing your DPO whilst accelerating your supplier’s DSO, Working Capital Solutions can help you to strengthen ties with strategic suppliers and free up cash to fund growth for your business – without increasing your debt load. At a time of rising business debt, Dan Georgescu, working capital senior consultant at REL, warns of the long-term risks of debt dependence:
“Interest rates won’t stay this low forever. What will be the impact then? You can only run out of cash once.”ii
For businesses seeking to access capital without unnecessary risk, Working Capital Solutions provides an alternative credit source that can help lay the foundations for ongoing financial health.
It’s also straightforward to supply. The solution utilizes an online payment platform that can be integrated into your existing payment processes without installing new software. Company specific billing and invoicing cycles can also be taken into consideration. So why not start enjoying a win-win relationship with your suppliers?
Find out more about how American Express could supercharge your cashflow here.