US and UK firms extend supplier payments

1 December 2008
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01 December 2008 | Jake Kanter

Nearly half of companies have extended supplier payment times to tackle cash flow problems during the economic downturn, according to a study by accountants KPMG. The survey of 566 chief financial officers in the US and Europe found 49.5 per cent have negotiated longer payment terms with vendors. In addition, 92 per cent of the respondents said the firms they supply to were aiming to extend billing periods. The report showed that 87 per cent of the CFOs had seen suppliers demand earlier payment. Some 20 per cent of those surveyed said increased lead times, as a result of sourcing goods and services in low-cost countries, had also affected their company's cash flow.

Roger Bayly, restructuring partner at KPMG, said organisations should be looking for more sustainable answers to problems with liquidity. "Although it may not feel like it now, the credit crunch represents a chance to push through reforms of working capital systems, and not just rely on 'quick fixes' [such as extended payment terms], which aren't sustainable in the long-term."

The study found that the best performing businesses link good working capital performance with managerial incentives such as bonuses.

SMdec2008

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