The number of purchase orders and invoices exchanged across global supply chains rose by 15% in Q3 2020 after falling by a similar margin in Q2, the latest Index of Global Trade Health from Tradeshift has revealed.

The report, which is based on analysis of transaction data flowing between buyers and suppliers across Tradeshift’s network, suggests activity levels in major supply chain hubs in the West and China are beginning to stabilise after a tumultuous period. Transactions in the Eurozone grew by the greatest margin, up 26% in Q3 as supply chains in the region added further momentum to the recovery Tradeshift saw towards the end of Q2. Trade activity between buyers and suppliers in the US also exceeded the global average, growing by 17% in Q3. 

In the UK, where trade activity levels had dropped by 23% in Q2, the bounceback in transaction volumes during Q3 was much weaker. After a relatively strong July, a significant drop off in activity during August and September meant that UK supply chain activity finished the quarter just 6.1% up on Q2. 

Activity slows as pent-up demand recedes

Other regions also showed signs of a similar slowdown, suggesting the release of pent-up demand after lockdown restrictions eased in the West may have fuelled the early burst of activity across supply chains in July. 

Transactions on the Tradeshift platform surged 24% in July. But month on month activity subsequently fell by 12% in August, before recovering slightly in September. In China, activity levels across the Tradeshift network looked on course to reach a level not seen since Q4 2019 in July. By September however, total transactions across the region’s supply chains had fallen by more than 18%.

“Global lockdown restrictions created a pressure cooker environment for supply chains,” said Christian Lanng, CEO of Tradeshift. “When the restrictions began to ease, we saw orders start to surge in June. This momentum continued into July before tailing off rapidly as supply lines normalised. Order volumes on our platform are comfortably ahead of where they were in Q2,  but supply chains will need to hit a higher gear again in Q4 before we can to point to a sustainable recovery. The next few months will be critical.”

Liquidity crunch putting supplier livelihoods at risk

A 20% rise in order volumes during Q3 should provide a welcome cash flow boost to suppliers towards the end of the year. But according to Tradeshift, action may be needed before then to address the current liquidity crisis affecting suppliers. A record fall in order volumes during Q2 meant invoice settlements remained low throughout the quarter. With the average small business having just 27 days of cash in reserve, many will be coming dangerously close to running out of money.

“Lack of digitisation in global supply chains makes it very hard to unlock the liquidity that’s owed to suppliers,” added Lanng. “ So, instead of getting paid quickly, suppliers have to wait months before orders translate into cash. We should start to see some of the current liquidity pressure begin to ease in Q4. Whether or not every supplier will make it that far is another question. If ever there was a time to rip up the old playbook and start doing things differently, it is now.” 

B2B volumes also up on the US ACH Network

The ACH Network in the US continued to show strong growth in the final quarter of 2020, with 7 billion payments made, an increase of nearly 9% from a year earlier according to data from Nacha. Combined with data on cheque payments, the results show the dramatic impact of the pandemic on the use of payments by Americans, businesses and government agencies compared to a year ago, before the pandemic had significantly impacted the US economy.

“Using the modern ACH Network for remote, electronic payments is an even better choice today for American consumers, businesses, and government agencies,” said Jane Larimer, Nacha President and CEO.

ACH growth accelerated in key areas that represent a quickening shift away from cheque payments. Payments to individuals by Direct Deposit increased by 11.1% to more than 2 billion. Direct Deposit is used for payroll and other disbursements from businesses to individuals, and for government payments such as Social Security benefits, unemployment assistance, tax refunds and Economic Impact Payments.

Business-to-business (B2B) payments by ACH for vendor and supply chain payments rose almost 15% from the fourth quarter, to 1.2 billion. At the same time, the volume of ACH payments initiated by a cheque (i.e., cheque conversions) declined by more than 23% in the fourth quarter compared to a year ago. Cheque conversion is used by some companies to process cheques mailed to pay bills, and cheques presented for purchases at the point-of-sale. In addition, the most recent data from the Federal Reserve on cheque payments (for the third quarter, 2020) show an overall decline in commercial cheque payments of 13.2%. 

Same Day ACH had 96.7 million payments moving US$139.2bn in the fourth quarter. These represent growth rates of 35.7% and 101.2%, respectively, compared to the fourth quarter of 2019, the last full quarter before the increase in the Same Day ACH dollar limit. The limit was raised to US$100,000 per payment in March 2020.