US port strike puts payments tech to the test

Michael Nagle/Bloomberg

The dock workers' strike along the East and Gulf coasts threatens to erase more than $2 billion from the U.S. economy in its first week, putting a huge dent in revenue as goods remain stuck on ships.

That will hit companies that rely on predictable delivery to manage their balance sheets and will draw attention to emerging tools that help firms pinpoint payments to the time of delivery.

"With real-time treasury capabilities moving into a full instant 24/7 ecosystem, corporations can more tightly manage cash flow, liquidity and trade finance activity in line with real-time events," said Carl Slabicki, executive platform owner for Treasury Services at BNY.

BNY is part of the Marco Polo Network, a bank-supported trade finance consortium that develops payments and financial services technology. The network accelerated its work during the COVID-19-related supply chain shortages and will likely be called into action during the port strike.

Federal Reserve Board of Chicago President Austan Goolsbee this week told Fox Business that the strike may hurt supply chains and that "anything that's a negative supply shock, in our language, that's going to raise the cost of doing business and lead to shortages, is something that we're just going to have to deal with and the impacts are never good."

To manage economic risk from supply chains, businesses often turn to supply chain finance, a product banks offer that enables suppliers to submit an invoice to the buyer's lender, rather than their own bank, to get paid earlier — with the lender getting a portion of that payment. 

Payments

Can payment automation help heal the supply chain?

February 11, 2022 10:45 AM

Another product, factoring, involves suppliers using their invoices as collateral to get money from their lender, which takes a portion of the accounts receivable.

The ability to access real-time payment data and automate processes allows businesses to make smarter, faster decisions about their working capital, said Sunil Rajasekar, CEO of Billtrust. "This, in turn, helps them navigate cash-flow challenges and respond quickly to shifts in demand or supply. Also, unlike during COVID-19, developments in AI are offering businesses new ways to improve their financial processes, enabling them to stay ahead of disruptions and maintain operational agility."

By using expedited payments through blockchains — the technology that supports cryptocurrency — or an instant settlement option such as FedNow or the RTP rail, the payment can be made and settled with greater certainty that the shipment linked to that payment has arrived. That more granular visibility can improve the ability of the parties in a treasury management transaction to negotiate terms for factoring or trade finance.

"Payments automation [can] reduce the historical delays and friction with disconnecting systems and processes," Slabicki said. These tools help corporate treasury, accounts payable and accounts receivable teams to more effectively manage through times of uncertainty and provide them better control over their working capital to meet the demands of their business and market conditions, he said.

The decentralized open blockchain shares trade data, connecting to both the seller and buyer's banks through an application programming interface, increasing transparency.

"Supply chain disruptions highlight the need for businesses to have flexible, automated payment systems that streamline cash flow, reduce operational costs, and minimize delays," said Arik Shtilman, CEO of Rapyd, a U.K.-based Stripe-backed fintech that sells a white label digital wallet to lenders and other products such as payment processing, disbursements and collections. 

"Automating B2B payments … gives businesses the agility to transact efficiently across borders and maintain liquidity when faced with disruptions," Shtilman said.

Accounts receivable and accounts payable automation significantly improves liquidity and cash-flow analysis, according to Albert Bodine, director of commercial and enterprise payments at Javelin Strategy & Research, who has studied the links between payment automation and supply chain risk.

 "As a former CFO, I see far more impact on the accounts receivable side as it relates to reduced DSO," Bodine said. DSO refers to days sales outstanding, or the number of days required to convert accounts receivable to cash. The shorter the DSO, the stronger a company's cash flow.

The past four years have stressed DSO due to the pandemic and higher interest rates. High interest rates increase the cost of borrowing, and thus make a lower DSO more important.

Automated dashboards and reports enable businesses to monitor their cash positions continuously and make informed decisions about their liquidity needs, Bodine said. "This real-time monitoring is essential for optimizing working capital and ensuring companies have sufficient funds to meet their short-term obligations."

Predictive analytics is another powerful tool enabled by accounts receivable and accounts payable automation, using machine learning and AI to forecast cash-flow trends based on historical data, Bodine said.

"These predictive capabilities help businesses anticipate future liquidity needs, identify cash shortages or surpluses, and plan accordingly," Bodine said. "By providing foresight into cash-flow trends, predictive analytics enable companies to take the initiative in maintaining financial stability and avoiding liquidity crises."