Responsibilities of Strongest Chain

The effects of the present credit crunch and new regulation is putting a huge strain on the weaker companies in the supply and demand chain. The strongest parties have for many years outsourced capital expenditure and costs to the weaker parties and the chain is not stronger than its weakest link. Unfortunately we still see strong, cash rich companies holding onto cash for much longer than the payment terms say, all for improving its own working capital. Large corporations proudly present how they have been able to shrink the cash conversion cycle simultaneously forcing other parts of the chain to expand its number of cycle days. This will not be possible any longer since this credit crunch risks becoming a systemic shift substantially reducing the cash availability for corporates and only those with high ratings might be the only ones able to find sufficient funding. Pushing the payment terms unilaterally to suppliers will not any longer work, alternatives have to be presented. We already have reverse factoring and dynamic discounting and new models are being developed, such as web auctions of account payable. 

In the short term however the strongest parties have to consider the cash conversion cycles not only for themselves in isolation but for the whole chain. In the longer terms we need to develop solution to replace the cash that has disappeared when regulation forces banks to leave us.