I agree they are doing that. But that’s not all they are doing.
They are squeezing the suppliers’ margins while bolstering their own. It’s simply one last counter-bite at the apple of price negotiations. Which may be canny CFO-ing, not moronic CFO-ing.
And they are engaging in a power play which can place the supplier’s people at a psychological disadvantage next time there’s a negotiation about anything.
No its stupid CFOing.
Its not squeezing another 2c in the dollar out of the supplier
Its making the supplier pay 3c interest so you can earn 2c interest, thereby increasing the cost in the supply chain by 1c
As far as I know, GE is still doing that. Payables are Net-90, receivables are Net-30.
Now do the export-import bank, which the big corporations love. Taxpayers fund that one. GE and others profit big time from it.
Worked at a small company for a short while that made a unique product. They were approached by purchasing agent for Big Ass chain. Owner refused to sell to them. He would have to upgrade production equipment to meet their volumes and he was well aware of their extended payment practices. Said he was happy being able to run his own business without being at someone else’s mercy.
I agree with the general gist of the posts here. Companies (the a-holes that run them) regardless of their size, but typically large ones, think they can bully suppliers with the promise (often false) of volume of orders.
I ran a small business and tried to treat customers as friends. But there were always those that took advantage, either with late payments or unreasonable demands and often both. I got the impression they may have considered me as a small business owner to be naive. They overlooked that I had spent years in the business prior and actually knew a thing or two about dealing with jerks. I cut these people off pretty quick. Just not worth it.
Late payers aside, it’s never good to rely on only one or two customers for the majority of your business, regardless of who they are or what they promise. Lots of smaller accounts are by far better any day.
I remember reading about Sears doing this back in the 90s or early Y2Ks. Back when they were a monolith.
The topic of this thread is the very reason my wife and I had to shut down our 40-year old business. We were a small manufacturing company and the bigger companies we were supplying kept stretching out the time frame for payment. Between that and ever-increasing material costs it just killed us. The Shops Around the Corner are dying in the USA.
I doubt that would be enforceable. Any business needs some time to process payments and 30 days is generally considered “reasonable”.
In my experience, many businesses do not pay regular suppliers invoices - they pay 30 days after receipt of monthly statements.
Traditional shops are dying everywhere (at least in the developed world).
When I walk down our small town High Street, it is very different to how it used to be. Fifty years ago, there were independent greengrocers, butchers and bakeries as well as some bigger stores like Woolworth, Marks and Spencer and British Home Stores. The rest were shoes, fashion and smaller speciality stores like the one that sold stitching silk and canvas.
There was a phase where it seemed that every other shop sold mobile phones, and there was a proliferation of coffee shops and American fast-food outlets.
Now, many of those shops are empty. Even the big stores have either gone out of business or moved to out-of-town retail parks. This is the changing face of retail.
Internet shopping is partly, or even largely responsible, but ever-increasing rents, parking problems and costs, and consumers’ reluctance to “go shopping” in the traditional way have all contributed.
That’s not correct. Payable upon receipt or net 10 is quite typical, at least here in the US. (“Upon receipt” is actually going to be several days after the transaction, what with finalizing the bill and sending it.) The company being billed often knows far ahead of time how much they’re going to be billed and has plenty of time to process it. I’ve seen it often in construction, health care, biotech, food service, catering, etc. 50% upfront is also common. These terms are agreed upon by both parties, it’s not a surprise.
Any buyer should make sure that whatever they are buying has been delivered before paying for it. Of course, advance deposited and interim payments are common although for business (as opposed to private domestic) purchasers, 50% must be pretty rare.
With building contracts, payment is often made when supplies are delivered as it can be onerous for a small contractor to pay for something when the final bill may not be due for a long time. I know very little about building as my background is in manufacturing and with the NHS.
No, not at all rare to pay 50% upfront with the balance due upon completion. My company just paid a biomaterials manufacturer under those terms.
That’s true , but the opposite happens as well , where a big customer squeezes the supplier. Like when Walmart sets a price they will pay for bikes but it’s so low that Huffy can’t make a profit without closing US factories and producing the bikes in China.
The technical term is
I learned about that term following the business of college athletics.
short sighted … companies (suppliers) normally work in their capital costs, knowing that they have to finance a deal for 3 or 4 months …
so its $100 for the client who pays in 30 days … if you are known to pay 120 days, your price will be $105 …
some roughness around the edges happen (until facts are established)
of course this whole game was restarted 1-2 years ago, when interest rates started to creep up and you’d get 1% per month in the bank …
In many cases the big customer dictates the price and the terms. The small supplier has two choices: take the deal, or not take the deal. There is no third option.