Walmart Builds a Working Capital Option to Support Small Suppliers

The world’s biggest retailer works with a large number of much smaller companies. In fact, more than two-thirds of Walmart’s 18,000 suppliers are small and midsize businesses (SMBs). “We see tremendous value in our relationships with our small and midsize suppliers, and we are always looking to strengthen that pipeline,” says Brandy Newhof, senior director of global treasury for Walmart.

The need to support small and midsize suppliers became particularly important last year, at the onset of the global pandemic. “Covid-19 was impacting many of our suppliers,” Newhof says. “Some faced local government restrictions on work conditions. Others faced hardships such as employees taking sick time or caring for loved ones who contracted the virus. We determined that our smaller suppliers were most at risk in that environment. On top of that, access to capital was nearly nonexistent for a lot of these companies. We started getting a few requests for changes to payment terms from suppliers in need.”

John Furner, president and CEO of Walmart U.S., and Kath McLay, president and CEO of Sam’s Club, jointly wrote a blog post that put it this way: “This is a difficult time for … the companies who produce the products we sell on our shelves and websites. Capital is increasingly maxed for some suppliers as their business models change and shift.”

Walmart’s leadership wanted to maintain the health of the company’s supply chain, and they realized that they were in a unique position because of Walmart’s size and access to capital. “Our executive team saw what was happening to our suppliers, our communities, and our customers, and they proactively looked at a range of initiatives to help,” Newhof says.

The company implemented health-related measures to help keep customers and staff safe. Walmart waived rent payments for some of the merchants that rent space in its stores. “And then, the management team asked treasury to be part of that effort,” Newhof says. “Our executive team explicitly tasked us with supporting initiatives that would offer small and midsize businesses extremely competitive financing to help them weather the storm,” Newhof says.

Walmart has long provided supply-chain finance options for its supplier base. Some of these programs offer traditional invoice financing through external banks. Others are more streamlined and automated, supported by web-based technologies. Suppliers in Mexico and Central America, for example, use an internally developed solution to give Walmart pricing discounts on invoices it pays earlier than the contract terms specify. In the United States and Canada, Walmart uses the online C2FO platform.

Within that platform, Walmart sets parameters for acceptable payment discounting, but it does not make those rules public. Supplier participants use the platform to view invoices that Walmart has approved and to submit a proposal for the level of discount they would accept in exchange for accelerated payment. Nearly 1,500 vendors participate in this program. In the wake of the pandemic, the treasury group advocated to make some adjustments with the goal of significantly increasing the volume of Walmart’s early, discounted payments to SMB suppliers.

“We decided we should eliminate the bidding process for small suppliers and directly offer them our best possible rates,” Newhof says. “We wanted to tell them the lowest rate we’re willing to pay early and give them the option to participate if they desire.”

Management approved this approach, and the C2FO platform made the technical changes simple. “The platform already enabled us to carve out segments of suppliers if we wanted to,” Newhof says. “That meant we were able to give extra support to the SMB subset of our suppliers with very little development work. We defined what we consider a ‘small’ supplier, then determined the special rates for early-payment discounts that we wanted to offer that specific supplier base.”

The next step in expanding usage of the supply-chain finance platform was communication. “We made a concerted effort to explain what we were doing for our small suppliers,” Newhof says. “We made it clear that we were offering this new option to help them with working capital because we value them as a business partner. We emphasized that flexibility is a major benefit of this program. Some of our suppliers don’t need access to capital on an ongoing basis but may have been quite strapped during the pandemic. They can log in; see all their invoices that are pending payment; and select all, none, or some of those to accept early payment at our low preset discount.”

Walmart created a YouTube video to explain the program to prospective participants, and management invited Newhof’s team to participate in an “open call” event, in which Walmart invites U.S. entrepreneurs to pitch their products to Walmart merchants. Moreover, Walmart merchant teams in both the United States and Canada reached out to individual small and midsize businesses to educate them about the program.

“Communication was absolutely critical,” Newhof says. “That’s an aspect that can sometimes slip through the cracks in a big initiative, but we set aside plenty of time and created appropriate materials to spread the word.”

Treasury worked with accounts payable (A/P) to make sure invoices for this supplier segment are processed and loaded into the platform as quickly as possible. And Newhof credits the C2FO team with making supplier onboarding quick and easy. A new participant can register in minutes, see a list of invoices that are approved and ready for discounting, and receive payment in just a couple of days.

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Now small to midsize vendors who log into Walmart’s U.S. or Canada program see a notification explaining that Walmart is offering particularly low discounting rates for early payments, with the goal of supporting smaller suppliers during the pandemic. The message clarifies the available rate and explains that the supplier can apply it to as many or as few invoices as it chooses.

As a result of these changes, Walmart treasury grew SMB participation in the supply-chain finance program tenfold. “We’ve gotten testimonials from individual suppliers who are very pleased that Walmart stepped up to help them in this way,” Newhof says. “On a larger scale, I think the numbers speak for themselves. The fact that we were able to grow participation 10x shows our enhancements to our C2FO program are meeting a real need.”

For Walmart, this proactive approach was well worth the effort. “There’s a working capital headwind to paying early,” Newhof concludes, “but we firmly believe that we’re only as strong as our suppliers are. Walmart has a symbiotic relationship with these small and midsize businesses, and we’re very proud that we’ve been able to give these suppliers new options for navigating these difficult times.”