Several months into the global pandemic, the full economic toll of Covid-19 is becoming more apparent. In the first three months of 2020, the United States experienced its largest quarterly contraction since 2008. In Europe, the slump is being called the worst since World War II.

There a few bright spots buried amidst the gloom. Some industries, such as packaged food and grocery retail, are experiencing significant surges in demand, and the stock market has made a surprising bounce back from its plunge in the second half of March. Following a low on March 23, the Dow Jones Industrial Average rose nearly 30 percent in the next month, fostering hope that we may experience a U-shaped recovery.

In the trenches, however, such bird's-eye observations take a backseat to companies' dire need for liquidity. The economic stimulus packages being brought to market by central banks underscore the demand for immediate access to more cash. The U.K. government has delivered around $400 billion in various financial relief measures, surpassing the stimulus deployed during the 2008 recession. And although the U.S. Congress has already passed four relief packages, debate on a fifth package is under way.

No industry has been unscathed by the global crisis, but each sector faces unique challenges. Some businesses need to increase cash stores to stay afloat until the crisis eases, so accessing new sources of liquidity is their singular focus. For other organizations, the challenge is keeping up with a significant and unexpected uptick in business. Either situation threatens to strain the corporate cash position.


What Invoicing Suggests About Current Liquidity Levels

The PrimeRevenue payment platform processes more than $250 billion in invoices annually, across a wide range of industries and in regions around the world. The platform gives suppliers the option to accelerate payment on those invoices. Thus, at an aggregated level, PrimeRevenue can monitor trends in both invoice value and payment speed. We use the combination of these factors to calculate a metric that we call "supplier payment acceleration activity." When supplier payment acceleration activity is rising, that means suppliers are taking early payment faster and/or on invoices worth more in aggregate—which generally signals a higher demand for immediate liquidity.

PrimeRevenue is currently seeing a notable increase in payment acceleration activity among suppliers around the world across a select group of both essential and nonessential business sectors:


Food retail.  Market-data provider Kantar reports that U.K. grocery sales jumped 9 percent in the early weeks of the Covid-19 pandemic. Tesco, a European food retailer, had to hire an additional 45,000 workers. Meanwhile, food sales grew nearly 4 percent globally year-over-year compared with 2019, according to Statista. Food retailers in the United States and abroad are concerned that distressed suppliers will have a negative impact on their business. An obvious example is the number of U.S. meat processing plants that have shut down due to coronavirus outbreaks within their facilities—leading to the possibility of meat shortages.

This essential industry is experiencing an uptick in demand, as consumers stock up on food supplies and cook more at home. In April, the value of invoices on the PrimeRevenue platform among businesses in this sector was up 5 percent year-over-year. Along with the increase in purchase volume came even larger growth in demand for early payment. Supplier payment acceleration activity rose by 20 percent in April 2020 vs. April 2019, demonstrating an immediate need for liquidity among food retail suppliers, as they respond to increased demand and market disruption.


Consumer discretionary.  This industry provides consumers with goods and services that are nonessential. A wide range of sectors fall under this broad umbrella, including automotive manufacturing, automotive retail, and home improvement retail. Due to the discretionary nature of these purchases, trade activity among companies in this industry tends to be volatile, and it is highly impacted by global events and the financial climate.

The automotive sector came to a halt early in the pandemic, because of both factory shutdowns and a deep decline in consumer demand. The financial repercussions were immediate. In the second half of April, car sales plunged 45 percent even as automakers offered lofty incentives on new vehicles. In April, representatives of this sector on the PrimeRevenue platform experienced significant decreases in total invoice value—down 87 percent among automotive manufacturers and 83 percent for automotive retail businesses. Moody's placed seven European automotive manufacturers and 14 automotive suppliers on review for downgrade. They did the same for 25 U.S. auto and commercial vehicle part suppliers.

On a positive note, many businesses in the auto sector are starting to come back online. Kia, Volkswagen, Mercedes, Fiat Chrysler, Ford, GM, Tesla, Toyota, Hyundai, BMW, Volvo, and Subaru all began reopening factories in the first half of May. The expected return to production might be fueling the increases we're seeing in liquidity needs within the sector. In April, supplier early payment activity among automotive retail businesses increased 274 percent compared with 2019. During that same month, automotive manufacturing suppliers increased their payment acceleration activity by 17 percent year-over-year.


Oil and energy.  Our data suggests that the oil and energy sector is currently behaving like a nonessential industry. Quarantine and self-isolation are driving a decline in demand as people stop traveling and use their cars less. This is reflected in April's 71 percent year-over-year tumble in the overall value of invoices on our platform for the oil and energy sectors. Oil and energy suppliers' appetite for immediate liquidity is understandably strong as they experience historic slides in prices and enter survival mode; supplier payment acceleration activity was up 19 percent in April compared with last year.


Industrials.  Like oil and energy, sectors such as aerospace and defense, industrial machinery, construction, and electrical engineering are acting nonessential. These industrial companies are seeing a sharp decline in demand, which has forced many to furlough staff. Another challenge is that companies have had to slow or cease production in factory environments as a result of Covid-19–related health regulations in jurisdictions around the world. April invoice value on the PrimeRevenue platform was down 64 percent year-over-year for industrial companies, while supplier payment acceleration activity increased 11 percent.


All Eyes on China

Our data indicates that the Chinese economy is coming back online and trade activity is starting to normalize. After a period of sharp decline that started in February, trade activity between suppliers and their customers (corporate buyers) began to increase in early March across 20 territories in China. In one weeklong period, as several Chinese factories reopened, trade activity actually outpaced 2019 by 30 percent.

Despite such bursts in business activity, volatility was prevalent across China through much of April, as the rest of the globe was impacted by the pandemic. Lockdowns, store closings, plant shutdowns, and shortened hours of operation in the United States and Europe have driven down demand for Chinese goods, resulting in approximately 20 percent lower overall invoice value compared with 2019.

Beneath the surface of this data, there is some good news. The slumps we've seen thus far in China have been relatively short-lived. Chinese suppliers' trade activity continues to be volatile compared with pre-Covid levels, but it has consistently improved since hitting the anemic lows of February. As of late May, early indicators show promise that volumes are nearing what they were in 2019.  For example, in the third week of May, volumes outpaced the same week in 2019 by 30 percent.

This introduces the possibility that after restrictions ease in the United States and Europe, the global economy may bounce back faster than most current projections suggest. Of course, changes in demand are going to play out in different ways within different regions and industry sectors. However, the data available to us now indicates that some industries' trading activity might mimic the pattern of China. We will continue to monitor global invoicing in the next few months to see whether this speculation holds true.


Balancing Current and Future Liquidity Requirements

Plenty has been said about the unprecedented nature of this economic downturn, and the same can be said for the climb out of it. The road to economic recovery will force companies to focus on two sets of obstacles: the ones immediately facing their business and the ones they'll encounter as demand normalizes.

In the future state—which might arrive within the next three months, by some estimates—supply chains will be under pressure to get back to "normal" quickly as governments around the world allow businesses to come back online. Some companies will have to ramp up production from zero to full steam. Others may see a longer-term reduction in demand as business normalizes. Or perhaps the global Covid-19 downturn will extend deep into 2021.

Whatever the case, it is fair to say that the transition back to business as usual (or thereabouts) will put stress on most companies' cash reserves. In this environment, many will need to pull all the liquidity levers available to them, including using supply chain finance to provide immediate liquidity relief to distressed suppliers. A diversified funding mix will be crucial to accessing the cash required to meet current-state and future-state business requirements.


Nathan Feather is the CFO of PrimeRevenue, Inc. PrimeRevenue's supply chain finance solutions help organizations in more than 80 countries optimize their working capital to efficiently fund strategic initiatives and strengthen relationships throughout the supply chain. 


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