Empires naturally seek to expand their power and influence, and the kingdom of Cash is no exception. As readers of this blog are well aware, large corporations in the US and Europe have been building up cash stores for quite some time, and have accelerated that effort since the recession by improving working capital metrics to free up more cash. Of course, the quickest way to do this is to pay suppliers later, thus extending Days Payable Outstanding (DPO). But at what point does the King need to take notice of the peasants in his kingdom and implement sustainable policies that will feed the kingdom while still enriching the king?
A great piece in the Wall Street Journal today digs into this (albeit without my "Game of Thrones" motif) with an article focusing on the increased hardships faced by smaller suppliers. Here are some of the more insightful quotes:
- Up to 64% of the 850 small businesses the group [National Federation of Independent Business] surveyed last year reported having invoices that went unpaid for at least 60 days, and 20% said delinquencies were getting worse...This is one area where large firms often take advantage of their market power to strong-arm small-business suppliers and customers,
- A study released in May by Experian, a global information-services company, found that overall, businesses earlier this spring were paying bills an average of 7.6 days past due, a 14.1% increase from the same period last year. The biggest companies in the study—those with more than 1,000 employees—had the sharpest year-over-year increase in late-payment days, up nearly 28%, the report found
- Of nearly 5,000 small businesses, 14% cited late payments as their biggest business challenge in 2010, up from 2% in 2008 The biggest companies in the study—those with more than 1,000 employees—had the sharpest year-over-year increase in late-payment days, up nearly 28%, the report found
- The average rates for corporate debt have dropped sharply in the past year, according to the Barclays Investment Grade Index, which tracks average rates on highly rated debt. Companies could borrow from the bond market at an average 3.35% as of June 4. Meanwhile, rates on the small-business loans charged by banks and alternative lenders are often in the double digits, though they can range from 6% to more than 20%
- Mr. Shult says at least one of his Fortune 500 customers, whose name he declined to disclose, is pushing for a 120-day payment term. "The choice they give you is take it or leave it," he says, adding that the company has invoices outstanding ranging from $50,000 to well over $100,000 apiece.
I certainly understand large buyers' desire to hold onto a significant cash cushion in the face of economic uncertainties, by why starve your suppliers when you can meet their cash flow needs while still enriching your kngdom's coffers? To find out how this is not only possible, but how many of our customers are achieving this win-win with their cash, I invite you to a webinar I am hosting with Vishal Patel of Ardent Partners on June 21st at 11:00 EST.
- 6 key Strategies for successfully creating and executing on the opportunity to invest cash in their supply chain
- How other companies have utilized Dynamic Discounting to reduce risk in the supply chain while increasing their return on short term cash in a risk-free environment (Case studies).
See you there!