According to new research from Demica, over 70% of large European corporates will actively try to extend payment terms with their suppliers in 2007. With suppliers already operating on squeezed margins, further downward price pressure could lead to instability in supply chains across Europe. However, in a positive move to relieve this ‘tug of war’, the research also reveals that European corporates are turning to their relationship banks for new, collaborative financing techniques that improve cash flow and release working capital to the mutual benefit of buyers and suppliers. After years of streamlining the physical supply chain, organisations are now looking elsewhere to push the boundaries of supply chain efficiency. When asked about the financial techniques that would best serve them during the next two years, respondents from Europe’s top 500 companies cited ‘relationship banking’ and ‘supply chain finance’ above all other working capital management techniques. In the Nordic region, however, large international firms were emphatic that pressure on buyers to extend payment terms was far greater than the European average and also that growth in usage of ‘supply chain finance’ would outstrip even relationship banking over the next two years. For Europe’s banking community, the continuing corporate reliance on their services is hugely encouraging. Leading European banks unanimously testified to burgeoning demand from their corporate clients for supply chain funding techniques, and the majority of banks surveyed claimed to either offer supply chain finance programmes already, or to be actively developing a range of products. Banks are evidently responding quickly, recognising that these new funding techniques offer more attractive margins than traditional bank financing, as well as presenting a valuable opportunity to extend existing customer relationships.
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