Name your terms

7 July 2010
Sarah Campbell blog picI don’t envy Dell’s suppliers. The IT giant has just told them that it is extending its payment terms from 50 to 65 days. That must play havoc with your cash flow when your own suppliers, as one vendor spokesperson said, are demanding payment in 30 days. Dell is, I suppose, at least being up-front about the fact that it can’t pay up within an already generous time-frame. It’s better than simply paying late. Obviously, paying within terms, or early, would be ideal. In a forthcoming issue of SM (22 July), David Brown, chief executive of payment process company Oxygen Finance, outlines the reasons why buyers should pay their suppliers promptly. Basically, he says late payment is unfair and puts pressure on typically weaker companies, increasing their risk of going under and threatening your own supply chain. But there’s a catch: Brown says that suppliers should be invited to be part of an early payment scheme, where they are charged 1 per cent of the invoice to be paid, say, after 10 days instead of after 45. So the premise is that suppliers have to pay for the privilege of … being paid. This seems a bit harsh, doesn’t it? Isn’t this just taking advantage of smaller companies, who have very little legal redress anyway when they are paid beyond terms? Recent research found that European SMEs write off 3 per cent of their payments as bad debt. On the other hand, paying 1 per cent of an invoice (a cost you can plan for) might be far preferable to suppliers than the uncertainty of not being paid within terms. What do you think? Is payment beyond terms just a fact of business? Is it naive to assume that if you say you’ll pay within 50 days, you do that?
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