Term: Why do B2B Suppliers want to be Banks?
B2B Suppliers have been offering their buyers Terms for goods and services purchased as a standard business practice for decades. It is common for buyers to expect suppliers to offer this in order to do business together. Term takes many different forms but the most common are 30/60/90 days. You will sometimes see a shorter term of Net 10 for a 1% or 2% Discount. This is sometimes offered to increase cash flow and reduce exposure a business gives by offering longer term. However, it is a massive tell about the supplier as it tells what the cost tolerance for collecting cash faster actually is. In the end it is all a bit of a game with every business trying to use someone else’s money for as long as they can for as little as they can to maximize their return. Term has in many cases become a liability that businesses are paralyzed to eliminate. Imagine if suppliers could just supply goods and get paid easily………. (lol).
Depending on who you talk to there are industry norms where 30 days is the most standard term, but more and more buyers are pushing the envelope. Take Kroger as an example, who in 2018 switched to a 90 Day Payment policy, unless of course the supplier gives Kroger a generous discount to pay within 10 days. Certainly, the best of both worlds for Kroger, I am not sure what is in it for the supplier but added cost, less margin, and often a strained relationship. There are other examples of large buyers taking advantage of Terms to the point of putting smaller suppliers into Bankruptcy.
When you talk to this 30-day supplier group, they are very clear on the Term they offer. It is quite humorous because these same businesses always have the best payers, no bad debt and all their buyers pay exactly on time. This is what they want you to hear. It is therefore strange when they tell you that their Days Sales Outstanding (DSO) is 45 days. Wait? What? Didn’t you