ARE COMPANIES STILL HAVING TROUBLE PAYING THEIR SUPPLIERS ?
In the world of logistics and procurement, and even more so today, it is not uncommon for companies to be a few days, weeks or even months late in paying their suppliers. It may not be what you want, but it is a reality. Unfortunately, even as the effects of the pandemic fade and many businesses return to normal operations, late payments to suppliers remain a persistent problem.
Many companies have experienced all kinds of difficulties throughout the past few years and even today, despite recovering sales, financial “stressors” persist. For example, recent data from a Hackett Group report showed that the average U.S. company took 58 days to pay its suppliers at the end of the first quarter of the year, compared to 55 days at the same time last year.
This figure is still lower than the course of 2020 and showed that the average payments were made in 62 days – but of course, much of the year was spent living under the restrictions of COVID and economic stress. However, the problem is interesting because this mid-sized company also had a cash balance that was up 14% on a year-over-year basis.
Small businesses affected
The cash reserves of large companies are now so large that some small businesses believe the decision to delay payment on orders is a strategy rather than a necessity. Indeed, 55% of small business owners say they believe these delays are “deliberate” and half believe they should be able to charge interest on these orders.
The main reason so many small businesses are irritated? A quarter report having orders that are 20 to 30 days past due, and 47 % say orders specifically from large companies have gotten worse in the past year, according to the report. For 30 % this problem has become so problematic that they may not be able to keep their business sustainable. They have also been prompted, for 40 % to delay hiring plans, 39 % to delay new inventory, and 36 % have been forced to reduce employee hours.
How to deal with uncertainty
Of course, businesses shouldn’t be forced to make these kinds of decisions, and anything they can do to increase their flexibility until things get back to normal will be very helpful, according to the law firm Faegre Drinker. This can include asking for discounted or partial payments, which are often accepted when business partners effectively communicate their difficulties. In this way, businesses get the capital they need to keep operating without putting a strain on long-standing business relationships.
The more you prepare for these potential problems, the better off you’ll be when faced with these obstacles. Whether it’s a one-time issue after a pandemic or a whole new way of working with the supply ecosystem, you could be setting yourself up for a smoother future.
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