View Full Version : Payment terms: Net 45 day?
05-19-2011, 03:01 PM
Due to the volatile economic climate we are living in, has your company changed payment terms to suppliers by establishing a new policy of Net 45 day instead of Net 30? My company has a policy that any new suppliers that are set up are required to accept our Net 45 day payment terms unless a "compelling" business case is presented to my CFO and the business case is accepted.
I'm looking for discussion on this on any and all levels (cash flow, supplier relationship management, etc.). Thanks for your input!
05-24-2011, 06:18 PM
The industry is Net 75 to 90 days. I initiated payment change from Net 30 to Net 60 more than two years ago. In my previous company, we were able to make Net 75 when the interest rates were much higher than today.
It should be relatively easy to convert from Net 30 to 45, as money is "cheap". However, some smaller vendors and type of businesses may encounter cash flow issue. For example, the contingency staffing companies that provide contractors. They must pay their work force right on the pay day. To extend the payment, they must build up cash pool. While in most manufacturing and service industries, suppliers can further extend their payment term to their suppliers.
06-23-2011, 06:51 PM
Our company is heading in that direction as well. What drove is that we are paying our suppliers prior to our customers paying us. Also, with the cost of money being so low and some suppliers just aren't willing to lose a customer over this.
06-30-2011, 05:04 PM
I guess the payment term "industry standard" depends on the industry that you are actually in. Having a benchmark for your payment terms is good but don't assume that extended terms net the lowest TCO. Remember to always look for opportunities to leverage, especially with smaller companies that may have less cash flow. Providing shorter payment terms may garnish enough of a price reduction to justify the shorter terms. I recommend teaming with someone in your financial department to determine which term is best for your company on a situation by situation basis.
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