Before 2009, a Company/Buyer asking for extended payment terms was a clear sign that the company is not doing well financially. Not any more
If your company is getting on the bandwagon of Net 90 or Net 120 payment terms, you are not alone.
As per an article on NewYork times, it is a growing trend and some suppliers are feeling the brunt of extended payment terms in the form of increased cost of capital.
3G capital, the Brazilian private investment group has been pushing for payment terms as high as Net 120. Some of the companies owned by them
Recent Heinz and craft merger
Anheuser-Busch, the makers of Budweiser.
Diageo is asking for 90 days payment terms.
Mondelez, Mars and Kellogg seek 120 days payment terms
Procter & Gamble is pushing the payment terms to 75 days and beyond.
No doubt that pushing the payment terms will help generate free cash flow which companies are using in different ways. For example, Mondelez is buying back stocks and Kellogg is in the middle of a restructuring.
Before you decide to go further on extending payment terms
Consider the impact on payment terms extension, lot of small vendors don’t borrow money to finance their working capital or even if they borrow, they have a very high cost of capital. Payment terms extensions, will eventually come back to you in the form of increased price. Supply chain financing might be an option but consider the impact on suppliers finance and see if you can find a middle ground.
Supply chain disruption: Advertisers are revolting against Inbev in Europe and planning to go on a strike. Before you apply a standard 90 days or 120 days payment terms blanket rule, segment your suppliers and see what is the potential risk.
You can read the article at the following link