Stable supply chains need stable financial flows

A payment default by a company within a supply chain can have far-reaching and long-lasting negative consequences. "For example, if a supplier is paid late, it can no longer fulfil its financial obligations to its own suppliers, which in the worst case can lead to the failure of a company's entire supply chain," says Calvin Klein, research associate at the Institute of Supply Chain Management at the University of St.Gallen (HSG). The terms of payment, such as payment terms or maximum order volumes between companies, are therefore of great importance for the financial stability of the entire supply chain.
As well, buyers often have a financial interest in extending the terms of payment with their sources of supply for as long as possible. "Especially in times of rising interest rates, many companies want longer terms of payment because this allows them to keep money working profitably for longer and reduce the need to utilise expensive loans," says Phillip Wetzel, who also holds a doctorate from HSG. "For large companies in particular, where receivables in the millions have to be settled, the terms of payment can therefore have a major financial impact." It is therefore important for companies to carefully weigh up payment terms within their supplier network in order to harmonise different and sometimes conflicting requirements. "You may have companies as suppliers that are more dependent on liquidity than other large partners in the supply chain, where the terms of payment can be extended without jeopardising their financial stability," explains Wetzel.

A tool for optimising payment terms

To tackle the problem, Phillip Wetzel and Calvin Klein have been looking for ways to optimise payment terms in supply chains in their research at HSG. While Klein is currently continuing this research, Wetzel has meanwhile founded the startup Calculum together with Oliver Belin, also an HSG graduate. With the so-called ADA platform, Calculum offers companies a tool for analysing their entire supplier network according to various criteria and optimising their terms of payment. A company can enter all of its suppliers here and an algorithm then analyses whether their payment terms correspond to those customary on the market. This provides the user with a database that they can use to determine what terms of payment each supplier offers their other customers.
 The tool also provides a lot of other useful information about the company's own suppliers, such as their creditworthiness or their ESG ratings, i.e. how good they are rated on the topics of environmental protection, social responsibility and good corporate governance.

A term of payment index for monitoring economic strength

Calculum has filled an important gap in the market with its platform. Founded in 2020, the startup has now grown to 30 people working in various offices in Europe and Miami. Its customers now include over 20 of the world's leading companies and Calculum was recognised as the best startup in Florida in 2021. In the future, the founders would like to expand the platform even further and also provide important information on terms of payment for suppliers instead of just buyers. They also have plans to develop a global index of payment terms based on their data. This could be helpful for economic analyses, for example. According to Belin, when many companies in one place run into difficulties, this is often accompanied by an increase in terms of payment. For the time being, however, further research in collaboration with HSG is necessary. "The academic exchange with the university is actually ongoing so that we can incorporate the latest findings into our AI-based platform."