Editor’s note: The following commentary by PrimeRevenue CEO P.J. Bain first appeared on PrimeRevenue.com but has been adapted for this publication with permission.
PrimeRevenue has closely monitored COVID-19 and its impact on global supply chains since the beginning of the year both by speaking to our customers as well as leveraging the data we have.
While our supply chain finance platform is global, a portion of our suppliers are based in 20 territories in China. We monitored activity before and after China’s peak in COVID-19 cases, and what we found gives us hope. Our data indicates that Chinese businesses are already beginning to ramp production back up to pre-COVID-19 levels, although we recognize that “normal” is beyond the horizon.
I’d caution that this is still early data and this article only references data through March 20. Whether or not this seeming recovery is real or sustainable is something we are watching daily.
What Data Do We Have?
Based in Atlanta, with offices in Hong Kong, London, Prague and Melbourne, PrimeRevenue has insight into invoices for about 30,000 companies in 80-plus countries through our supply chain finance platform. Our platform processes millions of invoices and tens of billions of dollars per month, giving us access to data that provides a benchmark for standard business activity and allows us to look for abnormalities in invoice upload patterns.
For context, let me point out that we have two major types of data we can monitor: approved invoice uploads and supplier trades.
- Approved invoice uploads: once a company approves an invoice sent by one of their suppliers, it automatically uploads onto the PrimeRevenue platform.
- Supplier trades: on the other side of that upload, suppliers can see all approved invoices on our platform and choose when to get paid by selling these approved invoices to a funding institution in exchange for a small, annualized fee. This gives suppliers access to critical cash flow. In March, suppliers chose to trade 93 percent of available invoices for early payment, well above the typical rates ranging between 70 percent and 80 percent.
This first analysis below covers only approved invoice uploads tied to suppliers in China.
What We’ve Seen
It’s important to note that every year, most businesses in China close for one or two weeks to allow employees to celebrate Chinese Lunar New Year. The holiday falls on a different date each year, but this year’s started Jan. 25.
Normal business patterns in China show an annual reduction in invoice uploads during this time as employees visit family and enjoy the festivities. Since fewer goods are shipped, fewer invoices are sent, and thus invoice upload volumes decrease. Once employees return and production comes back online, we see invoice volumes rise and eventually return to normal levels – typically within several days to a week.
PrimeRevenue analyzed data between January 1 and March 20 in 2019 and 2020:
Prior to the holiday, we were seeing a 28 percent increase in the value of goods suppliers were selling over the same period in 2019 – showing us the year was off to a great start for these companies in China.
After the city of Wuhan and the surrounding Hubei province were placed under quarantine and the Lunar New Year began, 2020 invoice volume dropped 62 percent below 2019 levels. Some of this drop would correlate to the annual holiday dip we see every year, however, this year’s slump correlated to the holiday and the outbreak, lasting between Jan. 21 and Feb. 13, or 23 days.
Then we saw a come-back period between February 14-26, when volume improved to be just 21 percent below 2019. By Feb. 26, we began to see a trend toward normal behavior. Between March 4-11, invoice amounts outpaced 2019 by 30 percent, likely correlated to restrictions being lifted in some of the regions within China.
We will be watching our data closely to see if these restrictions result in more improvement, or if the global crisis occurring now takes effect because demand is plummeting as many countries lock down their economies.
What Does This Mean?
At a time where there is precious little positive media, this may be a small ray of hope at the end of the tunnel. The fact that we’re seeing an increase in volume on our platform in China means that suppliers are shipping goods and trade is being transacted in the first country affected by COVID-19. Our preliminary data suggests economic downtime could last only four to six weeks if other countries follow China’s aggressive strategy of shutting down to contain the virus. It will be important to see how China’s containment efforts last as its economy comes back online.
Our statistics only represent a relatively small percentage of China’s overall GDP. However, our data can be an indicator of broader market dynamics in China. We will continue to monitor the data in China and report on major shifts we see. We will be sharing an update on other regions in the coming weeks so follow us on LinkedIn to stay updated. Sharing data like this can hopefully help many in the business community educate themselves to make better decisions.
Ultimately, it’s too soon to tell what the long-term impact will be from the coronavirus, however, in the interim period of uncertainty, cash flow is the top priority on every business’ mind. As a result, we are helping our current customers expand their programs to include thousands of new suppliers while also partnering with new companies to implement their first programs.
What’s most important is that we all look out for one another, both personally and professionally; this is the only way we’ll all come out of this crisis stronger than ever.
PJ Bain is CEO of PrimeRevenue, Inc. Headquartered in Atlanta, PrimeRevenue’s supply chain finance solutions help organizations in 80-plus countries optimize their working capital to efficiently fund strategic initiatives and strengthen relationships throughout the supply chain.