Over the past year I have noticed the voluminous amount of virtual ink being dedicated to the subject of supplier liquidity.
Perhaps in part driven by the introduction last summer, of the U.S. Government’s SupplierPay initiative, it is becoming clear that buying organizations have a new found awareness and even empathy, regarding the bottom line of those in their active supply base. In particular Small Medium Enterprises or SMEs.
Now some might suggest that the financial health of the suppliers within an organization’s supply base has always been a concern to the buy-side. True enough. However the big difference is that the buyer’s perspective is no longer one sided. Instead, the inward looking, self-serving mindset that has traditionally been focused on minimizing the risks to the buyer alone, is being replaced by a more holistic view of the enterprise and its trading partners.
In today’s more enlightened era of buyer-supplier détente, there is almost an atmosphere of shared interest and gain. In fact, it might even be reasonable to conclude that we have finally reached the end of the adversarial cold war of one getting the better at the expense of the other.
But is there a price for such a transformation?
I thought about this recently when I read a post by Nilesh Gopali titled “What is the “right” price for supplier liquidity.”
Gopali as you will note from previous posts here in this blog, is cloudBuy’s Country Head for India. Lately he has been gaining significant traction as one of the up and coming movers and shakers in the Indian eCommerce market.
When Gopali recently talked about how Procure 2 Pay “P2P” eInvoicing and secure payment facilities leveraging Purchase-cards enhances supplier liquidity, one reader made the statement that electronic transaction costs were “prohibitory”. It was then suggested that a “lower rate of 0.1% as opposed to 1% would stimulate greater participation with SME’s.”
While I will let you read the Gopali article to get his complete take on the above question regarding transaction fees, I will ask you; are transaction fees relating to Purchase-cards and eInvoicing platforms too high?
I know that when I use a conveniently placed ATM machine that is part of another institution’s banking network, I occasionally mumble discontentedly at the “higher than normal” user fee that can be as much as $3. It is a passing grumble simply because I remember what it was like before ATM machines existed. However, I might be inclined to do more if the costs reached a certain level. The question is, at what level would this occur.
Maybe it is in the context of my ATM analogy that P2P, and in particular Purchase-card, transaction fees should be viewed. Let’s face it, collecting receivables sooner rather later, is similar to the convenience of using an ATM machine. You have to give up a little, but what you gain is significant. In the case of the latter, convenience and accessibility. With the former, improved cash flow.
In this regard, one might be reasonable to conclude that per the Gopali article, “questions surrounding percentage points while understandable, are not . . . deal breakers.”