If you are hoping that the TARP (Troubled Asset Relief Program) funds will thaw the frozen credit markets for your supply chain anytime soon, be careful that you do not fall into one of the classic blunders. The first, is never get into a land war in Asia (tip o’ the hat to you Princess Bride fans out there). The second is that hope is not a strategy (except of course in the recent presidential campaign…but that’s another blog). As it turns out, hoping for relief from TARP may turn out to be a TRAP.

According to an article in yesterday’s Wall Street Journal:

Ten of the 13 big beneficiaries of the Treasury Department’s Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008.

The article also cited a survey by Duke and the University of Illinois, which found that 59% of the 569 companies that responded feel constrained by a lack of credit, causing many to scale back expansion and hiring plans. Duke finance professor Campbell Harvey didn’t pull any punches when looking at TARP’s ROI to date:

“It [the TARP plan] has failed. Basically we have dropped a huge amount of money…and we have nothing to show for what we actually wanted to happen.”

In other words, restrained credit conditions are not going away anytime soon, even with the billions of TARP dollars designed to free up credit having been thrown at the banks. This underscores the continuing need for companies to find alternative sources of cash flow that are not bank dependent, and to collaborate with each other.

What “bank independent” options are on the table? Often times, there is considerable cash locked up in receivables. Consider unlocking that cash by selling your receivables or engaging in 3rd party supply chain financing.

You should also analyze your own working capital metrics. Many companies can free up multiple millions of dollars by shortening their cash conversion cycle through the judicious use of the above mentioned tools to shorten days sales outstanding and extend days payable.

And by “collaborate”, I mean more than just the open dialogue and frank discussions you should have with key suppliers. Buyers with stronger cash and capital access positions can step into the breach for their suppliers offering early payment on Invoices at rates that are both fair to suppliers and a benefit to buyers earning next to nothing on short term liquidity.

It may also be possible for suppliers to help their buyers. Suppliers with stronger cash and capital access can lend a hand to their smaller, or cash constrained buyers by offering to accept later payment in exchange for a premium that is far better than the alternative time-value of an on time payment.

The point is, government/bank help may not be on the way anytime soon. So it’s critical for buyers and suppliers alike to consider all of their “bank neutral” and collaborative options to accelerate their cash flow, because it appears that for the time being, credit is going to remain constrained….despite TARP.

Drew Hofler is the Senior Manager responsible for Ariba’s Financial Solutions suite of products. In addition to extensive experience in banking and financial services, Drew is ACH Accredited and held Series 7 & 63 NASD certifications.