Impact of Rising Interest Rates on Supply-Chain Finance Programs: Major Companies Make Adjustments
Major companies are making strategic moves in response to higher interest rates by reducing the size of their supply-chain finance programs. This financing option, which allows companies to extend payment terms with vendors, has gained popularity in recent years. However, as interest rates have climbed, companies like AT&T and Keurig Dr Pepper are taking steps to minimize financing costs.
During the pandemic, supply-chain financing played a crucial role in helping companies maintain liquidity amid disruptions in manufacturing and logistics. These programs involve a third party, such as a bank, paying vendors before the scheduled due date, with the buyer reimbursing the bank at a later date. Despite the cutbacks by some large corporations, many companies still find supply-chain finance programs advantageous in a high-rate environment.
However, supply-chain financing has faced scrutiny due to its involvement in the collapse of investment firm Greensill Capital in 2021. Concerns have been raised regarding the potential volatility it introduces to a company’s cash flow and the associated liquidity risks. In response to these concerns, the Financial Accounting Standards Board has implemented rules mandating companies to disclose information about their supply-chain finance programs, including their size.
Overall, the decision by major companies to reduce the size of their supply-chain finance programs reflects the changing financial landscape in response to higher interest rates. Subscribe to the daily B2B Newsletter for more updates on this topic.
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