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Comment by jjeaff | Hacker News Reader

I remember in a corporate finance class in college, we did a lot of calculations comparing prepayment to net 30, net 90 terms, etc.

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.

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It’s basically a free short term loan from your suppliers who are eating the inflation instead of you. It does strain your suppliers but if your business doesn’t really need them and you can force them to accept it, why not?

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.

> It’s basically a free short term loan from your suppliers...

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.

Basically, yes. But many businesses don’t break it out as such (you can find by asking if they offer a discount for cash on delivery or even prepay).

I mean, yes, in a way. Suppliers are hopefully making money or they won’t be able to supply for a long time. On the other hand, large distributors love to include Most-Favoured-Customer clauses in their contracts so it’s often just an additional cost of doing business with them which has to be taken out of the margin.

Am I missing something? I don’t seem to understand how this is a swindle.

That’s because I initially wrote f*ked but thought I would stay polite.

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?

Groceries is a high capital very low margin business because you need to have all of the things in store before you can sell them, some of them for extended periods. Essentially this reduces the amount of capital you need to upfront and shoves it down to the next in line. The alternative would be to take a loan.

I would love it if the EU or government would enforce equal payment terms for whole company. Lets say a shop wants to have a net 30 terms with their suppliers, then they should also offer net 30 terms for their customers.

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.

I think it would be hard to sell regulators on "make business-to-business more egalitarian at the expense of consumers".

So I’d sell products to my customers (say bags of coffee) and then 30 days later come by their house (charge their credit card) to collect?

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.

That's the point. If you don't want that, then don't do it to your suppliers.

indeed. They should realize how ridiculous the whole net 30 days is .

You’re already giving the customers net 30 by accepting credit cards. Offering BNPL/afterpay would be another way to do it.

No, the credit card company is on the hook for your debt and will pay the business. The credit card company will be the one coming after you in 30 days looking to be made whole.

The merchant isn't being paid immediately either though. I don't think Net 30 is unusual for merchant accounts, but it's been a long time since I was exposed to details of payment processing (knock on wood)

> they should also offer net 30 terms for their customers.

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.

quite a significant difference for the complete population of Europe where basically no everyday purchases are made by credit card

That is very country specific. I could do almost all of my purchases with credit card if I wished. Or with buy now pay later. I don't really care, I pay my full balance on the CC at the end of the month anyway.

That's on them. If they want net 30, they can get it.

It sounds like that classic “focus on the things that can be measured easily” business finance attitude that causes things like “don’t kill your customers” to be missed.

Too bad "don't kill your suppliers" isn't a thing.

The customers of distributors are retailers. They’re not killing the retailer. They’d be killing the supplier in this scenario.

> But the general wisdom is to always try to take maximum advantage.

While in Japan everything is paid up front because this is what is culturally appropriate.

jjeaff - BNPL (buy now pay later) by companies such as Affirm may help level the playing field in applicable industries/cases as a 3rd party can shoulder the risk.

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.

I had similar lessons in an intro Accounting class I think, they compared the common "2/10 Net 30" payment terms, where you could take a 2% discount if you paid the invoice within 10 days. Annualized, that's a ridiculous rate of return and you'd be foolish not to do it if you have the cash on hand.

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.

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