How large companies are squeezing suppliers at this critical time

When many companies are already struggling with late supplier payments I recently came across this email from a very large company:

Subject line:

Update to Suppliers: Payment Term Standardization

Body text:

Dear Valued Suppliers:

... [Company] is committed to driving extraordinary value and innovative solutions to bring our customers best-in-class products. 

We seek to align with ... best practices as we standardize and streamline our operations and prepare for future growth. We look forward to having you grow along with us.

The intent of this letter is to inform you that, effective June 1, 2020, [Company] will be adopting a standardized payment term of net 90 days across all aspects of our procurement.

We highly value our relationship with you. If you have any questions or concerns, please reach out to our global or regional service centers.

We believe this change will bring long-term benefits and more business to all parties. Thank you for your partnership. 

Now, this email could have come from any number of large companies.

But what makes this so particularly appalling is that it's somehow sold as a positive for vendors. How exactly will 90-day payment terms "bring long-term benefits and more business" to suppliers?

Who needs "more business", when it takes 90 days to get paid for it and the customer is expecting you to fund their working capital? That sounds more like charity to me.

For most companies 90 day payment terms are already very long, even at the best of times. Average payment terms in Singapore, for example, are 29 days. But at this critical time when so many of this company's suppliers are undoubtedly having it tough, it's extraordinary for this company to squeeze more.

This is even more surprising given their very strong earnings report for the first quarter, when the Covid-19 issue was already known and underway.

It reported revenues that grew by double digits and well into the billions, and net profit of hundreds of millions of dollars. Assets outpaced liabilities by a wide margin.

Accounts receivable (moneys due from customers) already exceeded accounts payable (moneys due to suppliers) by a very healthy 2:1.

The company itself boasts billions of dollars in credit lines. It is very definitely not short of cash, unlike the vast majority of SMEs in the US and Asia.

Against this backdrop, you can see just how extraordinary this email is.

This particular company is not alone. Every company is looking to increase the speed of collections while paying more slowly.

But the result of that is that some of its suppliers will simply run out of cash.

By unilaterally extending payment terms, large companies force smaller companies to, in essence, provide them with working capital. That's even though the large companies can better afford loans.

Therefore, it is critical that large companies which can afford to pay their SME suppliers within 30 days, do so.

If you have similar stories of large companies that you think should pay their suppliers within 30 days, go to www.Pledge2Pay.sg and tell us who they are (scroll to the bottom of the page and click 'Call Upon to Pledge').