For fast-moving consumer goods (FMCG) businesses, speed is always of the essence. However, when it comes to retailers who stock your items and their payment terms, the speed rapidly slows down to a snail’s pace. So, when you want to ensure a positive working relationship with your stockists but need to manage your cashflow and suppliers for a smooth operation, having the right finance in place becomes essential.
The Payment Term Challenge
It is a common theme that big companies, such as retailers for FMCG businesses, have extended payment terms. These payment terms typically stretch from 45 days to up to 90 days. Some companies even have terms longer than this. Of course, this isn’t an issue if you wait longer than this to pay your suppliers. However, smaller firms will not be able to manage such a long wait to get paid.
This means your business needs to manage a long wait for payment from your customers while still paying your suppliers sooner and, more importantly, on time. This can lead to huge discrepancies when it comes to cashflow, which can become a significant challenge and a financial headache. That is, unless you have a facility in place to manage your cashflow finance, such as Supplier Finance.
The Best Funding Option For FMCG Businesses
Some retailers are supporting UK based start-ups to reduce their payment terms. For example, Tesco has now promised small suppliers who sell less than £100,000 or less per year in their stores that they will receive payment in 14 days. This is undoubtedly a step in the right direction. However, there are a lot of UK based start-ups that this will not benefit.
Of course, every FMCG business wants the largest order possible from retailers. But with larger orders typically becomes longer payment terms as you are seen as a ‘big player’ in the industry. Your suppliers, however, may be the SMEs where it is not viable to wait that long. Furthermore, you need an excellent working relationship with your suppliers so that production levels remain high enough to cope with the volume of orders that retailers want.
This is where supplier finance can really help.
Supplier finance, or invoice factoring, is a financial solution that provides much-needed funding for food and drink SMEs. It enables you to pay your suppliers on time while still ensuring sufficient cashflow for the day to day running of your business.
A lender, such as GapCap, will pay the invoices submitted to you by your suppliers. Then, when your customers have paid you, you can repay GapCap. This keeps your supplier ecosystem running smoothly and keep your suppliers happy with early payments. Ultimately, this means a longer, more successful business relationship.
If you’re looking to maintain a healthy cashflow while managing long payment terms and supplier demand, then supplier finance offers you a flexible finance solution which you can run alongside other funding solutions. To find out more about how supplier finance can help you and your suppliers, get in touch with GapCap today.