One of the biggest challenges that companies are dealing with in the aftermath of COVID-19 is supply chain interruptions. On top of a challenging economic environment with rising inflation, where effectively managing cash flow is a top priority, keeping a company’s assets, from laptop fleets to machinery and equipment, up to date is becoming increasingly difficult. For larger assets or speciality equipment, supply chain interruptions mean that, in some cases, goods can’t be delivered until 2024. When a deposit is required for the equipment, it can lock up working capital for over a year. However, not all finance options restrict cash flow and require companies to sacrifice working capital. Keep reading to learn why supply chain interruptions may persist and how vendor finance can help companies secure new equipment without the need for upfront deposits.
Apart from supply chain interruptions caused by restrictions and lockdowns where production capacity is reduced, chip shortages are a key reason supply chains remain slow and fragmented. According to Bain & Company’s third annual Global Technology Report, while some companies could expect some relief from supply chain disruptions in 2023, many will be waiting until 2024. Key factors influencing this timeline include reductions in chip demand, shortages of extreme ultraviolet (EUV) lithography equipment and geopolitical tensions. The current shortage of chips not only causes delays in producing devices such as laptops and mobile phones, but chips are also a critical component in machinery. Without a chip to monitor sensors inside machinery, warranties can’t be provided, which means the machinery can’t be delivered to customers.
Companies can’t control when supply chains and production capacities recover, but they can control how and when they pay for assets. Traditional finance channels, such as a bank loan, require the purchaser to provide an upfront deposit, even if delivery won’t occur until 2024. Not only does an upfront deposit cut into working capital, but delayed delivery also means a company’s capital is locked up. Any income production or productivity gains that would have offset the deposit in the first 12 months are lost when there are long wait times for equipment delivery. Further, when a company needs to deal with a financier and the equipment retailer separately, the finance terms aren’t structured to extract the most value possible from the machinery, which can place additional pressure on cash flow.
Vendors across many verticals are experiencing unprecedented demand for their products. Placing orders now is critical for companies looking to secure new devices or equipment and machinery. While there may be long lead times in vendor channels too, no upfront deposit is required. This allows a company to use its working capital for other revenue-generating activities and productivity gains until the order is delivered and repayments begin. This is particularly beneficial in a cost-out scenario where value is delivered as the new equipment is used. Further, with a vendor financier that knows and understands its products, maintenance schedules are established to keep the asset in peak condition throughout the finance term, including at the end of the agreement, where resale can easily cover the asset’s residual value.
Orders for equipment that can improve productivity and revenue-earning potential for a company should not be delayed, especially with supply chain disruptions expected to continue over the next two years. Using vendor finance to secure new assets now will help companies upgrade their equipment without the need for locking up capital in a deposit until delivery. This preserves working capital for other revenue-generating activities, which is critical in a challenging economic environment. Vendor finance is the smart option to keep cash flow strong and secure new equipment as soon as possible.
Quadrent’s vendor finance solutions help businesses of all sizes access the best equipment without adding pressure to existing funding channels. And through Quadrent’s exclusive regional co-operation agreement with Societe Generale Equipment Finance (SGEF), we provide finance solutions for global equipment manufacturers and distributors. With the ability to structure more flexible funding arrangements compared to banks and the expertise of vendor financiers that fully understand their equipment, your asset financing needs are in safe hands with Quadrent.
Contact us today to learn more about how Quadrent’s vendor finance solutions can support your business in acquiring the best assets and equipment without restricting your cash flow.