Supply Chains disruptions are rife and it has became even more vital for firms to reduce inventory days. Laurent Descout, Founder and CEO at Neo, looks at how innovations in cross-border payments can simplify the process and reduce costs.
A new report shows that supply chain disruptions could cost European economies up to €920 Billion, equating 7.7% of the Eurozone’s GDP by 2023. Factors such as the Covid-19 pandemic and the current geopolitical situation have compounded existing issues. A BDO survey of 600 finance leaders found that while “the pandemic exposed weaknesses in global supply chains, these issues were percolating well before.”
Inventory days are a key factor when mitigating the impact from supply chain disruption. When the shipment of goods is delayed, the number of inventory days – the time each item or stock is in the warehouse – increases.
Reducing inventory days should be a priority for supply chain firms – but external factors such as rising interest rates and funding costs have amplified the risks and the urgency for firms to react. In a volatile financial market, the more inventory days, the more costs businesses are likely to incur on their goods.
Factors such as manufacturing and production have a major influence on supply chain timescales but so too do cross-border payment cycles. The problem is that traditional approaches to cross-border payments are complex, long, and expensive, adding to the number of inventory days. This means seeking a solution to slow payments is essential for supply chain firms.
Why are cross-border payments so slow?
Cross-border payments are ripe for reform. When working with traditional corporate banks, opening an international bank account is a difficult, long and painful process – and the transactions themselves can add further days. Because businesses need to collect monies from across the world, they end up having different accounts for each country or currency, which adds complexity and further delays to transactions.
If a business needs to onboard a supplier in a different market, it can take weeks to get the infrastructure in place. Businesses are also losing out on cost, with cross-border payments, many banks don’t just charge the exchange rate and the FX margin; they also inflate the overall price.
Worst of all, many banks offer limited and incomplete payment information, making it difficult to reconcile payments, delaying the shipment of goods. All of which has a detrimental impact on the smooth running of supply chains.
If a business’ average payment cycle is two weeks and it can cut that by two days, it can save 50 days over just 25 payments. That could equate to significant savings on the cost of goods.
At a time when supply chain disruptions are rife, agility and speed is key, neither of which are offered through traditional banking partners. This means it is vital for treasurers to look for new approaches to reduce the number of inventory days through their cross-border payment practices.
New approaches to speed up cross-border payments
As cross-border payments continue to grow in popularity, businesses will need to find quicker, more cost-effective and transparent solutions to the outdated traditional banking approaches in order to reduce the number of inventory days.
It’s time supply chain firms reassess traditional relationships and explore new ones which provide the tools they need and service they deserve. Solutions are emerging which will mean business will no longer need multiple different accounts for collecting monies in each country or currency. This includes allowing businesses to set up their own international account with a multi-currency International Bank Account Number (IBAN) in their organisation’s name. As a result, they can manage corporate cash flows and view trading history, market data and statics, all in one place.
Virtual wallets then ease the process of making same-day payments. Businesses can use them to organise funds and store multiple currencies, ready for executing rapid payments or a currency exchange. This will make it a lot simpler for businesses needing to onboard suppliers in different markets.
Through these new approaches, supply chain firms can simplify and speed up payments, reducing inventory days and ultimately cutting costs. This will not only enable these firms to survive this current period of economic uncertainty but to thrive in the future.