Page 10 - MUFG Spring 2021

Solving Distributor Liquidity Shortages
By Maureen Sullivan
The pandemic is inflicting financial hardship on the supply chain—from manufacturers down to the end consumer—with particular pain for distributors, who are the critical intermediary agents responsible for delivering goods from producers to retailers and other businesses that sell to consumers.
Like many companies, distributors face liquidity shortages following the supply/demand dislocation brought on by the outbreak. To alleviate the strain on their cash flow and retain sufficient working capital to sustain ongoing operations, a growing number of distributors are trying to negotiate more favorable terms with their counterparties—namely, the ability to render later payments to suppliers who sell them products on one hand, and collect earlier payments from buyers to whom they sell products on the other.
However, plenty of manufacturers, retailers, resellers, and other companies that work with distributors face a similar squeeze. The reasons
vary, but most of them trace their roots to the pandemic.
For example, excess demand for certain goods has overburdened suppliers' production capacity and drained them of working capital. In other cases, lower demand for goods has caused income shortfalls among suppliers and buyers alike. And physical disruptions in the manufacturing or delivery of goods have triggered delayed payments.
Pressed between both struggling ends of the supply chain, distributors can only negotiate so far. What are they to do? The answer may lie in their receivables.
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MUFG TRANSACTION BANKING AMERICAS GROUP / SPRING 2021