What happens if your customer demands longer payment terms? - Image

What happens if your customer demands longer payment terms?

It’s becoming an increasingly popular news story – suppliers to larger businesses are being forced in 60, 90 or even 120 day payment terms. What happens if these suppliers don’t accept the new lengthy terms? They lose possibly their largest customer.

This gap between providing services and receiving payment causes significant cash flow difficulties as there is no money to reinvest in the business, or worse, the business can no longer cover the day to day running costs.

Booze, Food and Everything Sweet

Three examples of popular larger businesses seen to be ‘abusing’ their power by demanding longer payment terms for suppliers include AB InBev, Premier Foods and Mars Inc.

AB InBev is one of the largest beer companies in the world. You most probably recognise their brands such as Budweiser, Corona and Stella. It has been reported that AB InBev are now taking as long as 120 days to pay their suppliers, which can mean cash doesn’t reach a suppliers pocket for up to 12 months in the most extreme cases.

Premier Foods manufacture some of the UK’s favourite cupboard brands such as Bisto, Paxo, Mr Kipling and Ambrosia. They have lengthened their payment terms with their suppliers and are reportedly charging suppliers an upfront fee in order to stay on their supplier list.

Mars Inc have been covered previously last year by our PR team and how they suddenly changed their payment terms from 60 to 120 days. This is a massive change for their suppliers and as a result, Touch Financial had contact with suppliers of Mars, looking for a solution.

What’s the solution on offer?

Despite of Government intervention, small businesses are still being left with a cash flow gap, preventing them from running their business and growing to their full potential.

Whilst words such as “unacceptable”, “exploitation” and “holding small businesses and suppliers at gunpoint” are all impressive claims, the media have also failed to offer solutions to those affected.

Touch Financial have assisted suppliers who have been affected by changes in payment terms by securing them an invoice finance facility.

Invoice finance works by providing the cash value of an invoice on the day it is raised. This means that if a supplier has 60 or 120 days payment terms, they can continue to offer those payment terms whilst receiving the cash from the invoice within 24 hours after the product or service has been provided.

Learn more about how to bridge payment term gaps using Invoice Finance

To learn more about invoice finance, please visit our invoice finance product page. Alternatively, if you are keen to speak to a consultant for free advice and to help find the most suitable lender, click on the quote form button.

We look forward to hearing from you, so get in touch with us if you have any questions and particularly if you have been affected by a change in payment terms by your business customer.

Apply now and one of our consultants will help to find you the best invoice finance facility for your business, free of charge.

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