News | June 29, 2020

Solving the Long Tail Challenge: How Harbor Creates a Win-Win Proposition for Existing SCF Program Users

Running a business creates a variety of challenges to overcome, but one universal issue is managing free cash flow and accessing working capital. The problem is magnified among small and mid-sized enterprises (SMEs), for whom it routinely separates success from failure.

SMEs are the heartbeat of the global supply chain, yet constitute the weakest link, as access to credit is limited. Bills and other expenses pile up, while on average they have to wait 36 days to convert invoices to cash, according to a survey by PwC. Nearly 80% of SMEs fear cash flow will be affected by delayed payments.

Large corporates’ supply chain finance (SCF) programs are often seen as the silver bullet to alleviating their suppliers cash squeeze. But in reality, most SMEs are left unable to access the financing offered by these programs due to banks’ internal administration and profitability hurdles.

Banks have cumbersome and document intense KYC and onboarding processes, that can take several weeks for parties to complete. Carrying out KYC checks and following AML protocols means a minimum spend threshold is often imposed, ensuring the SME segments of the supplier base often remain untouched in the SCF programs from which they stand the most to gain. Demand is often dominated by anchor suppliers that offer high-spend, low-workload opportunities for SCF platforms and their lenders.

SMEs are therefore often left relying on more expensive and much scarcer overdraft and loan facilities as financing options.

Typically SCF programs only end up onboarding top tier suppliers, never offering financing to the hundreds of suppliers making up the mid and long tail, who need the early payment the most.

As a result, many programs fail to deliver on expectations simply due to a lack of supplier adoption.

By aggregating small and medium-sized suppliers, Harbor Trade Credit is able to deliver a win-win-win proposition, where buyers and suppliers obtain operational and working capital efficiencies, while SCF platform operators and financial institutions enjoy growth in the utilization of their programs, without the hassle of on-boarding.

“Supply chain financing works for larger companies, the industry has been around for years but no-one has managed to solve the mid-to-long tail. Technology alone won’t do the trick but the structuring Harbor brings, combined with technological innovations can solve the problem,” said Joaquín Jiménez Krijgsman, Harbor’s director of business development.

Harbor’s unique aggregation solution provides suppliers with the working capital they crucially need, while also offering buyers additional free cash flow through the aggregation of smaller supplier bases.

Streamlining through digitization, Harbor is able to deliver payment at sight to the supplier, eliminating the risk of buyer default, while also offering the buyer up to 120-day credit terms, improving their liquidity.

Harbor’s proprietary technology and service is able to reduce the cost and time associated with on-boarding suppliers and simplify workflows when dealing with SMEs, accelerating the adoption and overall utilization of SCF programs.

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