By Nelson Holzner, CEO and Co-Founder of MODIFI
Inflation is sweeping the globe in a way not seen since the 1980s. This, coupled with other external factors like clogged ports, only continues to exacerbate the havoc that disrupts the global supply chain. Exporters now find themselves in a difficult position where they must balance gambling on increased credit risk from buyers, navigating slower logistics and remaining one step ahead of their competition by offering favorable payment terms. However, exporters can overcome some of these challenges by using financing solutions to improve cash flow, and significantly reduce the buyer’s payment risk.
A decline in consumer demand caused by inflation and a decrease in consumer confidence is resulting in buyers taking more precautions to protect themselves when restocking inventory through trade. Multiple global factors, such as the ongoing war in Ukraine, continued COVID restrictions and unprecedented weather like rolling heat waves across the world, are contributing to the decline in buying power that consumers have, which is causing delays in inventory movement.
Reaction from Buyers
In reaction to current conditions, buyers are becoming more conservative about the payment terms for their exporters. Whereas buyers previously would have been willing to pay cash up front or provide a Letter of Credit to the exporter, most buyers now request an open account or ask for longer payment terms in the 60-90 day range.
Lenient payment terms are just one reactive measure buyers are taking in light of today’s global supply chain. Buyers are also causing a ripple with the length of time they are taking to pay – if they even pay at all. The Atradius Payment Practices Barometer – 2022 found that 42% of companies polled in the U.S. market reported devoting more resources to chasing unpaid debt compared to previous years. Typically, exporters could reduce this risk by requesting a Letter of Credit from the buyer, but the current market uncertainty has led to many buyers being unwilling or unable to do so.
Solutions for Exporters
Exporters can turn to financing to help maneuver the uncertain shifts happening in the supply chain and offer more enticing payment terms to buyers who currently have the upper hand in negotiations. As the certainty and timeliness of payments continue to decline, exporters can utilize financing to better manage their liquidity.
With a plethora of financing solutions available, exporters should familiarize themselves with the pros and cons of each option when deciding which is best suited for their business. For example, revolving credit accounts such as credit cards, working capital loans from banks, and buy-now-pay-later are viable financing solutions. When deciding the best option for their business, exporters should consider the difference in cost of using lines of credit, as well as the time required to establish them.
Since there are so many nuances, it can be challenging to compare the different types of financing solutions and land on just one. The best approach exporters can take is to adopt a combination of solutions that can be complimentary when implemented together. This strategic approach assists with maximizing available credit, and ultimately available cash, despite the turbulent market.
Digital Solutions to Scale and Manage Trade
It’s important to remember that “payment solutions” is an umbrella term and that financing is just one very important tool exporters can use. With MODIFI, exporters get paid instantly while the Buyers have the option to pay later..
MODIFI’s business payment solutions for sellers enable businesses to amplify sales growth by offering more favorable payment terms to key accounts that nurture growth. In tandem, it strengthens relations with buyers by allowing longer payment terms, increasing volume and mitigating risk. Additionally, businesses will receive an expedited cash flow by getting paid on day one, rather than day 30-120, which can be used to fund business growth, even during uncertain times.
Many of our clients have bank facilities but will add our solution as an add-on to their export business for multiple reasons. We fund deals banks typically reject, our non-debt solution provides an extra cushion of liquidity, and we’ll handle the collection directly if the buyer is late.
MODIFI accomplishes this by conducting credit risk assessments on the buyer and insuring them, meaning if the buyer defaults the seller will still get paid. This drastically reduces the risk of fraud in thde transaction because MODIFI owns the invoice.
MODIFI’s digital platform helps businesses of all sizes quickly scale and manage trades with no long-term contracts. Not only is it a hub to manage invoices, track shipments, and oversee the overall payment process, but it is an easy-to-implement solution that allows sellers to manage their liquidity, enabling them to do larger trades, handle supply chain uncertainty, and expand on trade by having the funds to operate and grow their business.
Nelson is currently the CEO and Co-Founder of MODIFI, a global fintech company that enables global commerce through a platform for business payments and trade management software. He is a lawyer with over 20 years of professional experience in top international firms, startups and high growth companies. As a founder and former CEO of BillPay, Nelson guided the company to over €3bn in payments, which he later sold to Klarna, the biggest fintech company in Europe.