Small businesses play a vital role in the American economy – employing more than half of the country’s workforce, creating nearly two out of every three new American jobs, and often being the source of the next great American innovation. Small businesses were affected by the recent recession, losing 40% more jobs than the rest of the private sector combined. A recent report indicated that 66% of small businesses found it difficult to raise funding for their companies.
Having seen the success of the Supply Chain Finance initiative in the UK, the White House launched its own equivalent known as “SupplierPay.” More than 50 private sector companies have already signed the pledge and committed to provide an option to their suppliers to get paid earlier. Faster payments help small business owners reduce their need for external lending, grow their operations and create jobs.
SupplierPay builds on the success of the US Government’s QuickPay initiative, which President Obama launched in 2011, requiring federal agencies to expedite payments to small business contractors with the goal of paying within 15 days. SupplierPay represents the private sector’s equivalent, where companies commit to pay suppliers faster or help them get access to attractive financing.
Goals of SupplierPay
Improve Working Capital for Small Businesses
The main goal of the SupplierPay initiative is to support US based suppliers with early payment terms and offer them access to attractive financing solutions to improve their working capital. In addition, the White House, together with the Small Business Administration (SBA) promotes the exchange of best payment practices between large corporations. Even though the initiative does not set a limit for payment terms, some companies have already agreed to pay their suppliers as early as 15 days, according to a statement from the White House.
From Challenge to Opportunity
How Supply Chain Finance Solutions Can Transform the Small Business Landscape
1% of US businesses with $25 million in revenue or less have access to debt and equity markets. In contrast, 90% with $1 billion or higher in revenue are able to do so.
46.5 days is what the median S&P 500 company paid suppliers during 2013, up from 44 in 2004 and 43 in 2008.
40% of small businesses applied for credit and either received no capital at all or received less than the amount they requested.
Why Support the Initiative?
Share Best Practices
As of October 2014, more than 50 US based corporations including IBM, AT&T, Lockheed Martin, Coca Cola and Johnson & Johnson have signed the SupplierPay pledge. Signing the pledge represents the companies’ commitment to support expediting payments to suppliers, and following guidelines that work towards closing the marketplace gap in small business funding.
By signing onto the SupplierPay program, large buying organizations ultimately aim to lower the working capital costs for their suppliers.
The SupplierPay initiative also includes sharing best practices among businesses in order to encourage program support, and implementing solutions that align with small business needs and benefits. Members also commit to implementing financial solutions that enable small suppliers to access working capital at a lower cost.
Consider the Benefits
Benefits for the Buyer
Pay suppliers early in exchange for a discount or optimized payment terms
Improve working capital
Improve relationships with key suppliers
Strengthen the financial supply chain by providing suppliers with access to cash
Benefits for the Supplier
Meet cash flow needs at attractive funding rates
Improve working capital by getting paid earlier
Reduce need for external lending