Page 14 - MUFG Spring 2021

ONE-ON-ONE WITH
Maureen Sullivan
Managing Director and Head of Supply Chain Finance with MUFG
These are perilous times for all supply-chain partners, but especially for smaller suppliers who lack ready access to working capital, and are existing on extremely thin margins in a severe economic downturn. With a tendency of some buyers to stretch out payment terms, there is growing interest in supply-chain finance programs.
QDo you see an uptake in companies today selling their receivables — and if so, why?
A It is true that buyers are trying to negotiate extended terms. But again, if you look at what's critical to a buyer and their whole production cycle, it’s ensuring that they have the critical supplies. So if a supplier is in trouble or needs liquidity, an alternative would be for the buyer to use their own cash. I don't believe that's an efficient use of their cash, but it's a way to protect the stability of their
supply chain.
Q A
A
The first question is, what sort of liquidity challenges are suppliers facing today? Many are challenged in meeting payroll and other operating expenses, given reduced production or delayed payments. And while government programs have provided some relief, there are restrictions on how the proceeds of these credit facilities can be used. At the same time, tightening of credit markets results in companies experiencing higher financing costs and more stringent borrowing structures, all of which are creating a shortfall in cash for suppliers to meet working-capital requirements. So suppliers’ access to cash has tightened with restricted credit facilities. An alternative liquidity source is the sale of receivables, rather than waiting until the underlying invoice is paid by the supplier’s counterparty and cash is received. Companies are enrolling in supply- chain finance programs, which enable them to sell the receivables to a bank in exchange for immediate cash, a method that shortens their cash-conversion cycle.
Isn’t it also a trend that payment terms are being stretched out?
Q
Is there a correlation in company size of either the buyer or supplier that makes this an especially popular practice right now?
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Are there any particular industries in which the practice of selling receivables is especially popular right now?
I would say it's across the board. We work with buyers and suppliers across general industries through technology and healthcare. We've seen some of our healthcare clients wanting to broaden the reach of the supply-chain finance program, especially to smaller suppliers who are probably struggling the most with liquidity. So they're expanding it beyond their typical strategic supplier base.
Q
A Candidly, it’s across the board.
MUFG TRANSACTION BANKING AMERICAS GROUP / SPRING 2021