My first job out of school was for a mom-and-pop manufacturing company. I got an inquiry one day from a very well known company, and mentioned it to the boss. He gave me a long lecture about why we didn't work with that industry. They were notorious for stringing their suppliers along and holding them in a sort of debt bondage. I remember responding with a FAX (yeah, that's how it was done) explaining our terms: Pay in advance. The boss made sure that the business was never beholden to a single large customer.
We also had a draconian, hair-trigger, credit hold process. I remember overhearing the scheduler / receptionist telling a customer: "You are on credit hold right now, we can't schedule your next production run."
Automotive? That has big automotive energy.
My fortune 10 company regularly pays our bills after the pay period - like 60 days late on a net 30. And then I, a technical person that just wants the damn AWS bill paid so I stop getting emailed about it, have to chase down the people responsible internally, even though they get the same billing emails. Because for some reason they didn't like the old way of setting up auto pay. Oh. And they will send literal paper checks to pay some bills... to closed offices since everybody works from home now.
The accounts payable department wastes more time than they save.
The game is to maximize cash flow, though in the end, it doesn't make a lot of difference except in very thin margin businesses. But the general wisdom is to always try to take maximum advantage.
I always felt that it is a silly strategy considering that it strains your suppliers, provides little financial benefit, and big corporations blow so much money on so many other things that could easily be addressed before worrying about setting up net 30 payments.
As a supplier, payment delay is basically a cost you have to bear to deal with large distributors. It’s a trade off between somewhat predictable volumes and cash flow availability.
I would never do a one off with a large distributor however. You are going to get swindled as this article nicely illustrates. Large distributors buyers have years of training exploiting people in your situation.
Honest question: Is this really a free loan, or is it the cost of the load hidden (i.e. the interest charges are not broken out explicitly)?
For example, if a supplier has shipped goods with a wholesale prices of USD 100 to a retailer with a net 30 day payment term, I would assume that the USD 100 includes all of the costs associated with that USD 100, including the costs of "financing" that USD 100 for 30 days.
Edit: I've known many people who started freelancing and who forgot to include all of their costs when calculating their rates, especially costs for things like repayment terms. This seems like a very easily overlooked problem for most new businesses.
You don’t think being ordered a very large amount of a product then being told months later that actually that was a mistake and you now have to take back the products while not having been paid at any point during the process and having them try to charge you for the costs of storing it and shipping it back to you sounds like a swindle?
With BNPL, small companies are paid right away (within 1-2 business days), and the BNPL provider is responsible for collecting payment from the other party.
I don't think BNPL it would apply in this case specifically as the grocery industrial complex seems stuck in the last century, but in other cases it is an innovation in payment terms that could help.
Full disclosure - I have no affiliation with Affirm or any other BNPL provider.
This would equalize power dynamics. The large corp shouldn’t be allowed to demand immediate payment on one side and then just significantly delay payments on the other side.
This is a terrible idea. Half of the people wouldn’t have the money and your company would become a debt collection agency. You’d be forced to charge at least 3X for the product.
Consumers already have Net 30 terms via credit cards.
The difference is that the shop isn't waiting for you to pay and the credit card company takes on the risk.
If the terms are simply "net 30" with no early payment discount and no late payment penalty, there is no incentive for the customer to pay on time.
While in Japan everything is paid up front because this is what is culturally appropriate.
Worst in my experience was Unilever, who simply assumed they could pay in 90 days, which ..er.. rankled. Thankfully the job I did was directly for someone quite high up, so a week's worth of pointed emails and calls somewhat hastened payment.
In the end they paid 2 weeks after the net-60 expired. Probably calculated to be maximally annoying with the least amount of risk of legal costs. Really takes the wind out of you. Selling to California startup type companies is so much nicer, I once took a call, negotiated a whole new pricing model closed the deal, entered the product details into FastSpring and the customer paid 40k for the yearly subscription on that model that same afternoon.
"F*ck you, pay me"[1]
In which Mike's lawyer makes the very good point that you should really put an attorney's fees provision in your contracts so that the purchaser pays your legal fees if you need to chase!
I tend to disagree with that mentality.
Imagine I need some stuff now (or on the next truck), I can place the order and it will be immediately loaded on the truck. Then separately, they'll send an invoice to the accounting department who will settle it over a week or two, which may involve moving money around, foreign exchange, etc.
I don’t have a good answer, but this isn’t a one-sided thing where the big guys are taking advantage of small companies. This is also small companies agreeing to operate the way big ones do in order to get a foot in the door.
Everywhere I've seen you've payed that months rent by the ~5th of that month or they come after you for interest.
Fine, let’s talk post paid. Electric bills. How you would you feel about an electric company that sent you an invoice and wanted to be paid daily? Yes, yes, the analogy is also imperfect because consumer electric companies can do auto-pay and walmart generally does not for small vendors. But please try to see the point even with a less than totally perfect analogy to consumer life.
This would be trivial via Direct Debit.
I know that in Australia the terms in groceries are horrendous. Generally, frood vege suppliers have to buy specific boxes for delivery (from the supermarket chain) they then still have to pay rent on those boxes and if items don't sell they have to take them back (and pay a box use fee again), make items available at discount for specials run by the supermarket, on top of that the payment terms are as described above. Essentially the big chains don't take any risk, and the small suppliers all the risk. This might be particularly bad because the market is dominated by 2 chains. Supposedly Aldi and Lidl were much better at the time, because they tried to break into the market.
This situations where paying in advanced _every_ time would be cumbersome just means the customer has to maintain a balance. There is also a difference between a business and residence.
And forget about daily. It's very reasonable to want monthly pay, and should not be a burden at all. And monthly pay would need at most a month of float, on average probably less. That's not where the real payment issues are.
Ten minutes later I get a frantic call from procurement, begging me to put the site up. I fumbled with the billing system, and finally told her, I think the only way to fix it is make a payment... which she did. $6,200 on credit card. The customer never missed a payment after that.
I run an advertising company and we always take payment in advance and work with several large (publicly traded) companies.
This was 2003-2006ish, for the record.
How the hell is this even legal?
Advertising or informational industries (e.g. non-tangible goods industries) seem to operate differently, as you've said.
So it makes sense to never extend credit.
I do think it’s very industry specific and food / retail as one of the worst.
The reason kind of seems to be to give more flexibility to the supply chain. If everyone required payment upfront to get items to shelves or lots for customers to buy, then the risk goes more fully on the last link in the chain. It appears this pattern began to spread the risk to the entire chain.
But from the industry side. At the big corp level this is all handled by some CRM/Oracle/IBM/SAP system and once things have been approved by whatever chain of people need to sign off, the payments are automatically sent out. The flip side is that if someone hasn't approved something, or they're waiting for paperwork unbeknownst to you, you have to wait until they do another run. So you have to nag them. The people who bought the thing from you are probably not the people who will actually pay you.
They also have: https://walmart.c2fo.com/walmart
They’ll pay you say 97% of invoice. They’ll collect as they can
This is a feature, not a bug.
If you are in an inventory-rich industry, you do not want to deal with a supplier that has no working capital.
Goods first - money later sucks if you are a small startup. But it's much easier to work with inventory and figure out the money later than vice-versa. Toyota does not want to stop the production line because their order of ball-bearings showed up late and now they have to start a new purchase cycle.
That was half the reason for the chip shortage. Auto manufacturers collectively (and incorrectly) forecast a decline in demand in cars during the pandemic, cancelled a bunch of orders for chips and a bunch of the suppliers went under. Then started offering 10x-20x for replacement chips from their few remaining suppliers (that pretty much all went to buying out wafer slots that would have been non-automotive chips) to keep a $35k car not being able to be shipped for the lack of a $0.30 part.
OTOH, it's very difficult to raise money as a retailer or distributor but 1000x easier (still hard) as a brand.
If you have enough brand recognition where they must have your product specifically, this usually means you are big enough that the payment terms aren't that big of a deal
It really makes me appreciate the US more. But I am still dismayed that I'm all caught up on the state of commerce and that its not even more streamlined and sophisticated.
Bethesda is infamous for withholding payment to smaller companies to force an acquisition of IP. And (not to get political) big-shot celebrities like Donald Trump or online influences do it too. Often it's even worse than "we'll pay you later", it's "give us a steep discount and we'll pay you back in exposure/future opportunities to make a lot more."