Big Customers that Pay Slow

The Wall Street Journal reported recently that Procter & Gamble is looking to extend payments terms to suppliers from 45 to 75 days.  They are actually late to the game.  Some large companies are demanding terms of 60–100 days. My clients have seen similar behavior from large dominant companies including Boeing, PG&E, United Natural Foods, and others.

My personal opinion is that that these large companies’ treatment of their smaller suppliers is detrimental to everyone concerned, let alone unethical.  America is trying to recover from its worst economic downturn since the 1930’s, yet big business is hording cash by the billions, cheating its small business suppliers out of normal payment terms, thereby slowing the economic recovery.  These small business suppliers cannot maintain normalized cash flows since they don’t get paid for 75 or more days, yet they have to pay payroll every two weeks, and they have to pay their suppliers in 30 days. I call this bullying, and think it should be stopped.  But my opinion doesn’t count.  Such abhorrent behavior will continue for as long as they can get away with it, and until they figure out that their small business suppliers will eventually find ways to fight back.

That’s where your business strategy comes into play.  If you have a large customer that makes up 15% or more of your total sales, you have an unhealthy concentration that makes you a target for big business abuse such as 90-day or longer payment terms.  What’s the answer?  A couple of things come to mind:

1. Focus on branded products/services that can’t easily be replaced. In fact, that’s always a good strategy. It gives you a more even-handed bargaining position with the bullies.  If you instead sell a commodity that the big guys can easily replace, you will forever fall prey to big-corporate bad behavior.
2. Diversify your client base to the greatest extent possible.  Once the large customer falls to 10% or less of your total sales, you can negotiate much harder and/or walk away from the table if unreasonable terms are all that is being offered. Even if you have to venture outside your core business to diversify, strongly consider it in order to level the playing field with your large customer.

You can’t control bad behavior on the part of large corporate America, but you can control the direction of your company’s product offering and sales.  Seek diversity in order to fight back until the bullying tactics of big business is fully exposed and hopefully done away with.