Suppliers financing customers - responsible, sustainable?

| 0 Comments

 

BillMichels.jpgIn April Rio Tinto announced that it would reverse a decision to extend payment terms for suppliers. One of the world's biggest miners, it had planned to double its payment terms in a move that would have forced its suppliers to wait up to 90 days to be paid.

Rio Tinto is not alone in (wanting to) extend payment terms.

Extending terms is a great example of “leveraging suppliers” who, themselves, have invested in facilities, employees and inventories in the most corners of the globe just to support the customer.

But it’s not sustainable, says Bill Michels, CEO and founder of Aripart Consulting.

“Cash-starving the suppliers who extend an organisation’s capability is irresponsible; it starves investment, innovation, growth and quality. Does that sound sustainable?”

Michels cites The Unsuitability of Extended Payment Terms, an article which highlights major food producers like Mondelez, Mars, Kellogg’s, Church & Dwight, Anheuser-Busch In Bev and Heinz who extend payments to suppliers from 90 to 120 days.

“In many cases the suppliers to the food industry are agricultural industries surviving crop-year to crop-year. This industry requires capital to acquire the seed, fertiliser and equipment, which is all at risk in volatile commodity markets,” said Michels.

Big Companies Pay Later Squeezing Their Suppliers says that companies like Mondelez are using the cash for a stock buyback initiative. Kellogg’s is financing a restructuring project and P&G has added significantly to its cash flow.

“The end result is a cash-poor supply chain that cannot withstand interest rate hikes or another financial crisis. We have been fortunate the past few years that money has been virtually free, enabling this practice. However, in the long term it is not sustainable and many of the smaller suppliers in many supply chains will be in trouble when conditions change.”

Michels recalls a Fortune 500 customer that owed him money, but hadn’t paid invoices dating as far back as seven months for work done according to a contract.

"On that day, the customer’s project manager told me that I would be paid the following week if I would discount the fees owed. I had little choice but to grant a discount at the time—credit was extremely tight and we were owed a lot of money. The payment terms for this client were 90 days, plus I had three other clients who had moved to 90-day terms, so having a customer stretch payments as much as 180 days was a true crisis.

“I couldn’t tell my employees that I couldn’t pay them because the customer hadn’t paid, so I maxed out the business line of credit and borrowed the max on my house to pay salaries and bills for the business.”

“I’ve never forgotten the $1-billion+ company that used my small business as the bank…”

Are you requiring suppliers to act like a bank?

Leave a comment


SmartProcurement Newsletter
X

Please enter your details below to receive the SmartProcurement Newsletter for FREE on a regular basis.

As part of the SmartProcurement Newsletter you will be receiving World Class Procurement News, Tools, Tips, Tactics, Procurement Training updates, Upcoming Events, and the latest Procurement Career Openings.

* Email Address:
* Title:
* First Name:
* Surname:
* Company:
  Position:
* Country:
* Public / Private:

 

Career opportunites

Operations Manager

  • >500 000 Gauteng Operations, Planning & Inventory Permanent Supply Chain
Our client within the FMCG industry with a ...More

Warehouse and Distribution Manager

  • >500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Permanent
An exciting opportunity awaits for a Warehouse and ...More

Demand Planner

  • <500 000 Permanent
Get an opportunity to be part of one ...More

Procurement Manager

  • >500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
An opportunity for a seasoned Procurement Manager, who ...More

Industrial Engineer

  • >500 000 Gauteng Industrial Engineer Permanent Procurement Consultant
An exciting opportunity that offers extensive exposure on ...More

Deputy Director: Procurement

  • >500 000 Contract Procurement Management Procurement Officer / Specialist Western Cape
Department of Economic Development and Tourism:Procurement Specialist, Ref ...More

DEMAND PLANNING MANAGER

  • >500 000 Gauteng Operations, Planning & Inventory Projects / Category Management
(Total Cost to Company R750k – R900K) excluding ...More

GLOBAL SUPPLIER PERFORMANCE MANAGER

  • >500 000 Gauteng Operations, Planning & Inventory Permanent Projects / Category Management
(Salary: R 1.3M –R1.5M, dependent on level of ...More

GLOBAL CATEGORY MANAGER

  • >500 000 Contract Gauteng Procurement Consultant Projects / Category Management
Total Cost to Company R1mil – R1.2mil excluding ...More

Project Manager

  • >500 000 Contract Procurement Management Projects / Category Management Western Cape
 Description:A well-known retail organization is looking for an ...More

PROCUREMENT ANALYST

  • >500 000 Analyst Gauteng Permanent Procurement Management
Description:A leading infrastructure development group with strong presence ...More

Commodity Manager: Fuels and Lubes

  • Commodities Gauteng Permanent Projects / Category Management
 Ensuring continuity of supply in line with business ...More

Senior Facilities Manager

  • >500 000 Commodities Gauteng Operations, Planning & Inventory Permanent
(Total Cost to Company R800K – R900K) Johannesburg Our ...More

ENGINEERING STANDARDS MANAGER

  • <500 000 >500 000 Gauteng Industrial Engineer Permanent Procurement Management
(Total Cost to Company R350K – R550K) JOHANNESBURGYou ...More

Supply Chain Analyst

  • <500 000 >500 000 Permanent Procurement Officer / Specialist Supply Chain Western Cape
(Total Cost to Company R350K – R550K)  SOUTHERN ...More

Security Manager

  • <500 000 >500 000 Gauteng Permanent Projects / Category Management Strategic Sourcing
(Total Cost to Company R350K – R550K) JOHANNESBURG This ...More

Demand Planner

  • <500 000 >500 000 Operations, Planning & Inventory Permanent Projects / Category Management
(Total Cost to Company R450k – R550k, dependent ...More

Procurement Specialist-Randburg

  • >500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
(Total Cost to Company R700k – R800k including ...More

Solutions Architect

  • >500 000 Gauteng Industrial Engineer Permanent Projects / Category Management
(Total Cost to Company R1.3Mil – R1.1Mil including ...More

MANUFACTURING MANAGER - OLIFANTSFONTEIN

  • >500 000 Gauteng Permanent Projects / Category Management
(Total Cost to Company R850k – R950K including ...More