In tough economic times, as we saw in the Great Recession of 2008-09, it is common for companies to extend payment times to suppliers, improving cash flow at the vendor’s expense.
Supply Chain Digest Says... |
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| Europe, interestingly, takes a much more vendor-centric view. By EU regulation, the maximum payment terms in a contract should be 60 days. |
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Now, the same thing is happening in the current strong economic climate.
New research from consulting firm The Hackett Group, as reported by the Wall Street Journal this week, found large US companies on average took 58 days to pay suppliers in their first quarters of fiscal 2021, up 5.5% from 55 days in the comparable period for 2020.
For all of 2020, companies took 62 days on average to pay supplier invoices, up 7.6% versus 2019, based on analysis of public data from about 1000 companies.
But many companies take far longer than the average to pay their bills.
Case in point: Macy’s, where in May Chief Financial Officer Adrian Mitchell said the company on average took a whopping 163 days to pay vendors in Q1, up from 134 days a year earlier. That means the retailer’s vendors don’t get paid for almost half a year after shipping Macy’s their goods.
Food giant Mondelez International recently said its cash position rose thanks to an increase in its days payable outstanding.
It took Mondelez 130 days to pay suppliers in Q1, up from 122 days a year earlier, according to the Hackett data. But “slow pay” at the company isn’t done.
“In the area of [days payable outstanding], as we look across the board, there are still opportunities that we can pursue,” CFO Luca Zaramella said last week.
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Of course, the long and growing payment cycles puts cash flow pressure on suppliers. To deal with that, a growing number of companies have developed supply chain finance programs, in which they work with a bank to provide payments to vendors against their receivables from slow paying customers, naturally taking a small cut for the effort.
Europe, interestingly, takes a much more vendor-centric view. By EU regulation, the maximum payment terms in a contract should be 60 days. They can only be more if it is not "grossly unfair" on the creditor.
In the EU and the UK, interest and late payment compensation is due on any overdue payments, at a minimum interest rate of 8% in the EU.
Any reaction to ever later payments to vendors? Do we need Euro style regulations? Let us know your thoughts at the Feedback section below.
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