Extended payment terms - clout versus collaboration
Over the last several months, the Financial Times(June 2) and The Wall Street Journal (April 16) have published articles that report on the movement by the consumer products marketing and manufacturing companies – P&G, Mondelez, etc. – to extend payment terms with their suppliers up to 120 days.
As a Purchasing professional with experience in the consumer products industry, I question this approach for a number of reasons:
- The major global marketers have the clout to make this happen, but it’s clout not collaboration. How can these companies talk about the importance of collaborative relationships with suppliers on the one hand and then tell them they won’t get paid for 120 days?
- In addition to the obvious benefit to P&G, etc., the other beneficiaries are banks and factoring companies. I found the comment that “P&G will help its suppliers get low interest rates” really astounding – they recognize that suppliers cannot afford to finance P&G’s business, but that’s ok.
- Consumers – all of us- will eventually pay for this. The suppliers are already being squeezed through the consumer products supply chain that starts with the retailers and extends back through the marketing companies. The finance costs for the extra 60-90 days is an added cost to the system which they cannot absorb.
- It will get much worse once interest rates go up.
I hope that some readers will comment on this. Maybe there is a piece of the puzzle that I am missing, and if so, I would like to hear what it is.