Commercial realism

 

There is a growing trend for companies to bully their suppliers over the question of payment terms. It is not unusual for buyers who hitherto had paid on the basis of 30 days to now demand switching their suppliers to 90 day payment terms.  The food processors Heinz have informed their suppliers of a “switch” in payment terms from the previous 45 days to an extended 90 day cycle.

Such terms can only be served by larger organisation with adequate cash reserves.

For the small to medium supplier it further ratchets up the pressure as banks are unwilling to increase their credit lines.

This is not a new phenomenon. For some time companies have sought to stretch the length of their payment terms by all manner of means both fair and foul.

As profit margins are further squeezed by increased operating costs the importance of maintaining cash flow is vital.

Business is hard-won in the current climate, but above all there has to be a commercial raison d’être for any transaction.

Mutual reciprocity has to be the basis for the customer/supplier relationship for it to remain worthwhile.