That’s a problem for the next CEO. Get as much as you can right now.
It’s pretty well agreed that Being pretty well single-handedly crippled its entire supplier base IOW the entire 2nd and 3rd tier US aerospace industry by demanding and getting low-priced terms that precluded those suppliers from investing in progress, or from having the financial wherewithal to survive industry turbulence. Lotta dead companies on the ground and nobody is having much success in putting that ecosystem back together.
Why did Being strangle their own golden goose? The impact on the share price looked great to that CEO. And the “investors” who bought the stock for the runup then got back out did just fine. Now comes the mess.
And that’s just in the industry I know best. Similar stuff presumably goes on all the time in industries I know nothing about.
No. What that means is they are having a cash flow issue. That is a warning sign.
Next step is not paying at all, giving some excuse as to quality or something. Then Chapter 11.
Net 30 is normal. Net 60 is not uncommon.
My company also provided non-production work for a Big 3 auto manufacturer and they held payment for 180 days. They also practiced the art of finding something wrong with the invoice, kicking it back to us to fix, and then restarting the clock at zero. When we complained their attitude was, “If you don’t like our terms you’re free to find another Big 3 auto manufacturer.”
The UK has a Prompt Payment Code. It’s a long way from perfect and not every organisation has signed up to it, but those that do can often expect more favourable terms than those that don’t.
On 1st July 2021, the rules of the PPC were tightened. Payment times to SMEs have been halved from 60 days to 30 days, and the signatory’s owner, CEO or Finance Director is now personally liable for poor payment practices.
Under the new reforms, organisations that have signed up to the Prompt Payment Code must also:
- Pay 95% invoices from businesses with 50 – 250 employees within 60 days.
- Pay 95% invoices from small businesses (with less than 50 employees) within 30 days.
- Report annually on their payment performance, on a comply or explain basis (even if the signatory is an SME themselves).
- Recognise the right of suppliers to charge late payment interest and charges if an invoice is paid late without justification.
- Provide suppliers with a contact point for payment queries.
This reminds me of a catering company I worked for. A large downtown law firm signed our contract for the catering job they wanted, with terms clearly stated as payable upon receipt of final invoice. Then they refused to pay for 90 days, saying that’s just how they roll. Assholes.
Another thing I did learn in my brief history as a consultant is that at least some big companies do think of these things. E.g. A is clearly a better supplier than B, and A could fulfill all of our needs, but we still want to farm out some of our work to B so we have a backup in case A goes out of business.
But that isn’t what other posters are talking about. In their examples, the supplier is providing supplies on a bill that is to be paid on 30 days. That’s a contractual term for the sale of the supplies.
And the big companies are saying « Sod that, we pay on our own timeline, not your piddly little contract terms. »
That’s not the free market. That’s a breach of contract.
The free market works on the basis of contracts being freely negotiated, and then both parties respecting them.
Big companies choosing to ignore their contractual obligations because they’re big and can stiff the little companies undermines the trust that makes free markets work.
I don’t know why you’d snip the last part of my post only to repeat it in paraphrase. The part you snipped:
Don’t know how it works in your jurisdiction, but in my province, the Code of Conduct that applies to all lawyers includes an obligation to honour contracts. If that happened to me, I’d file a complaint with the Law Society, against the law firm, and specifically name any lawyers from the firm who are on the correspondence.
Not legal advice, of course. Just what I’d consider doing.
General Electric did this all the time back in the 80s.
Most vendors usually give a discount if you pay quickly. They would also charge interest if it was past the due date. GE would take the discount and then pay well past the due date.
Since GE was a major purchaser in the area, no one called them on it. Their business could keep a company afloat.
My boss would not offer the discount and add the interest to the amount billed.
One of our clients is the largest beer company in the world. We are on Net 120 day terms with them, non negotiable. Another client is a global top 5 pharmaceutical manufacturer, Net 90.
It’s just the way it is with large businesses. They have the bat and ball and control the play of the game.
I worked for a small distributor/supplier of cleaning supplies for businesses. I was in an accounting class at the time and noticed on his invoices he put Net 30 days. In the accounting class we were talking about typical invoices being 2/10/Net 30, meaning 2% discount if you paid in 10 days, otherwise the net of the invoice was due in 30. I asked why he didn’t do that, and he responded with “Most folks will take the 2 percent and then still pay in 30 days” and even though we dealt mostly with small companies, we wanted to keep selling instead of starting an argument, so we just went the simple route.
Because the terms of the supplier was for a certain payment time, and we unilaterally changed them without any negotiations.
The other unethical stuff I mentioned included ripping off the government.
We had an incredibly long (months) negotiation process with one smaller company. Nothing unethical about that. Changing the terms of the deal after it has been agreed to is something else.
And on the other side, I’ve heard of some small companies having a policy of not selling more than (e.g.) 40% of their output to any one buyer. The auto company that was their biggest buyer could easily absorb all of their output, but they didn’t want to be in a position where the auto company could completely jerk them around.
Personally, if a Big Company said straight-up that they wanted an x% discount (equivalent to a third of a year’s interest, or whatever), I’d just assume that they were tough negotiators, and decide whether the purchase they were making was large enough for me to justify the discount. Quite plausibly, my hypothetical business would agree to a deal with them. But if they said that they weren’t going to pay me for 90 or 120 days or whatever, even though the bottom line is the same, I’d say no way, no how, because to me, that sounds like they’re saying that they don’t have the money now, and who knows if they ever will. I might agree to a 2% discount, but I can’t agree to a 100% discount.
Was once involved in textiles trading and one of our customers had been in a very long term quasi partnership … started when the current business owners grandfathers were running the show in the 1900s. The agreed trading terms were now stretched out to 360 days from invoice date. It as also a dodge by the product managers to invoice goods well after delivery. This amassed into a rolling line of credit of several million dollars.
I work for a small commercial cleaning company. We have a few big customers that do this. It’s a hardship for us. We need to pay our employees and being that they are a big customer we just have to grin and bear it.
Wen a big buyer imposes long payment terms, this means :
- the big company is in the shit and is desperate for cash
And/or
- the CFO is a moron who does not understand basic maths or logic
And/or
- the Purchasing function are weak / incompetent and are Finances’ gimp, not a proper function
The simple fact is that supply chain finance costs money and the most efficient way to finance is for the party with the lowest cost of borrowing - ie the big company - to be the borrower. When big buyers force their smaller suppliers to lend them money all they are doing is borrowing money at their suppliers bank rate rather than their own.
I worked at a company who prioritized vendors by “importance” and would often run lower-tier vendors past 90 days, thereby placing a hold on our account. We’d go to order from these places, get told the account status, then accounting would arrange a payment term or find us a credit card or send a cheque to cover our order.
Embarrassing when there were multiple companies in the same month we couldn’t buy from without jumping through hoops.
Any possible price breaks we could have had were not available because of our tendency to go into 90+ status all the time.
Reason given was that they could keep their cash in the bank that much longer.
Yay sketchy accounting.