March 4, 2009

Why Are We Financing Fortune 500 Companies?

Why Are We Financing Fortune 500 Companies?

And here’s another problem of the economic meltdown — companies are stretching out their payables like mad.  Our average payable has increased 50% in the last 120 days. That translates into millions of dollars of cash shortfall versus our plan.  We believe it’s all still collectible, but we just can’t seem to speed up payment.  We are going to launch some new and more meaningful efforts to collect, but it just shouldn’t be that hard.  And you hate to be heavy handed with customers in this environment.

Is it a good idea to threaten to suspend service?  When do you cut someone off?  Is it appropriate for the CEO to make a collections call?  All these questions now come into play.  We never had to think about them before.

What’s particularly irritating is that, with very few exceptions, every company on our account roster is larger than we are, with bigger balance sheets.  So we find ourselves in a position where WE are financing big companies.  It is absolutely maddening.

3 responses to “Why Are We Financing Fortune 500 Companies?”

  1. bfeld says:

    This is an insightful and important construct. I've been through this twice – the first time with my first company around 1990 and then again post bubble. It's really abusive on the part of larger companies – especially when they stretch payables and don't provide an explanation or any "quid pro quo" (e.g. a willingness to pay a higher price).

  2. We just had a “partner” demand 90 day terms. We reluctantly compromised at 60 days, but only after they put a gun to our head over an existing receivable. They implied that the payment that was negotiated years ago could get delayed if we didn’t agree to the new terms. Stress brings out bad behavior in people. We’ll build the cost into future business with them.

    In another example, we have a customer that owes us $1,200 and won't pay. They are a startup that is getting great press and looks successful, but won't even pay their bills. They don't dispute that they owe the money, they just say they don't have it. Even so there are a few bad guys out there, we've lost very little to bad debt.

    I do hate being the bank when the partners and customers are so much bigger than me. One thing that has worked for us is to negotiate a contract that has a discount for early payment. Our best partner is a fanatic about paying quickly (10 days I think it is) to get the discount.

  3. We do early payment benefits as well, but in this environment, that doesn’t seem to be moving the needle for clients, unfortunately.