How Supply Chain Financing Is Solving the Credit Crisis

The global credit crisis is forcing banks and corporations to find innovative ways to raise cash to keep businesses running. Many are turning to supply chain financing, which is like a pay-day loan for businesses. Suppliers use the invoice for a shipment as collateral to get a low-interest loan from a bank. Banks know that they will get paid due to the credit-worthiness of the business receiving the goods. This helps small suppliers get better financing terms. Even banks that are reluctant to lend to each other are willing to lend against approved purchase orders and invoices with companies that have a good shipping record.

Corporations are also becoming more efficient in their operations, which also helps to free up cash. In addition, corporation Treasurers are becoming more focused on making sure the cash they do have is invested in "safe havens," such as municipal bonds. They are also becoming more savvy about foreign exchange and interest rate risk. In other words, good companies are squeezing cash out of their operations and cash management, since they can't rely on banks. (Source: Global Finance, Banking on innovation, November 2008)

What Better Cash Management Means:

Government efforts to pump liquidity into the global financial world is restoring confidence. However, the public sector can only do so much. It is up to the banks and their corporate customers to solve the credit crisis through new, improved ways of doing business. Innovation got us into this mess, and innovation will get us out.

When the dust settles, it will be companies that have developed innovative cash management systems, efficient operations and good relationships with their business partners that will rise from the ashes. Those will also be the same companies that value their employees and foster an innovative culture.