Many years ago I wrote about how many companies were trying to get a one-time boost in working capital by extending their purchasing terms from typical net-30 to net-90 and even net-120. In some cases they were even partnering with banks to offer the supplier a short-term loan to cover the longer payment terms. Really.
At the time I was running a medical device component company that was a sole source for many parts, so I had the leverage to reply back with “no.” I also had a letter that read along the lines of “I’m sorry to hear of your apparent financial distress and desire to ask our much smaller company for a loan, but we’re not a bank.” By the way, Quality Digest did a very funny video discussion of this craziness, calling out some of the well-known companies involved, which you can still watch here:
Here We Go Again with the Long Payment Terms
I’m not sure if it’s related to COVID, but over the past few months this has apparently become a thing again. I’ve heard from both our internal finance group as well as friends of mine at other companies that they are receiving many letters from customers saying that terms will be extended. In some cases the customers are also pushing suppliers into accepting third party purchasing cards (someone’s earning some points in exchange for the fees…!), or requiring that the supplier cover the cost of some internal initiatives or even take mandatory price cuts.
In all cases the letters usually state that the change is “to align with industry-standard terms” and “create a better supplier-customer partnership.” In most cases suppliers aren’t as fortunate as I was, and have to simply buck up and accept being bullied.
I can understand needing a few days for a probably unnecessarily complex A/P process to pay a bill. But anything beyond that few days is really just taking a loan out from the supplier. The customer may get a one-time boost in working capital from this effective loan, but the usually smaller supplier may have real cash flow issues and may need to forego investment into improved knowledge, design, and processes. Who really loses in the end.