Although you could exercise your ‘walk-away’ rights, we all know that a customer representing 10%+ of your business is not easily replaced, especially in a flat-line environment…
The issue is whether you need to reduce the payment period to reduce exposure, i.e. the risk of a customer going bust, impact on cash-flow of an extended credit pipeline, or simply on principle i.e. a deeply-felt determination not to shoulder the working capital responsibilities of even your best customer..
If the issue is one of company principle, then the Board must be prepared to take the pain of de-listing, with the NAM simply becoming the messenger who hopefully survives the ‘walk-away’ trip…
Ordinary mortals need to focus on the cost of risk-reduction and minimising cash-flow impact…
The ‘on-time payment’ blind alley
Incidentally, forget the regulation/legislation re ‘on-time payment’. As you know, this simply states that the customer ‘must’ pay within the period agreed, be that 30, 45 or even 90 days. ‘On-time payment’ is not about paying within a defensible time-frame i.e. say 10 days for a daily-delivered product that is sold within 5 days of receipt…
In other words, if a supplier is not paid on transfer of value, i.e. when the goods are sold to consumers, then, by definition, the supplier is providing extra value in the form of interest-free credit, and this should be factored into the supplier-customer equation…
What to do about it?
Whilst you may not be successful in negotiating a reduction in payment terms, it may be possible to approach the problem in a different way i.e. via compensating concessions.
How to do it?
Having calculated the cost of financing the current credit period (NamCalc), say 65 days, vs. the cost of the ideal reduced period, say 30 days, then the 35 day difference will be the amount the supplier needs to recover from the relationship via a combination of additional low-cost, high value concessions from the buyer...
These could include ‘last-minute’ extra facings to fill unexpected gaps, temporary exclusivity, and ‘free’ use of space for in-store theatre-promos ( the mults have increasing issues with redundant space).
In order to be able to agree a fair exchange of a combination of these concessions for credit period, it is important for the NAM to be able to calculate or at least estimate the incremental sales that can result from the each initiative, never forgetting that every move creates a precedent…
The key idea is having the courage to put credit period in the middle of the table, quantify it from each party’s point-of-view, and explore different options with the buyer that may go some way towards re-balancing joint value..
Simply regarding credit-period as a fixed norm not only misses a negotiable trick, but also represents increasing risk in the current climate…
The issue is whether you need to reduce the payment period to reduce exposure, i.e. the risk of a customer going bust, impact on cash-flow of an extended credit pipeline, or simply on principle i.e. a deeply-felt determination not to shoulder the working capital responsibilities of even your best customer..
If the issue is one of company principle, then the Board must be prepared to take the pain of de-listing, with the NAM simply becoming the messenger who hopefully survives the ‘walk-away’ trip…
Ordinary mortals need to focus on the cost of risk-reduction and minimising cash-flow impact…
The ‘on-time payment’ blind alley
Incidentally, forget the regulation/legislation re ‘on-time payment’. As you know, this simply states that the customer ‘must’ pay within the period agreed, be that 30, 45 or even 90 days. ‘On-time payment’ is not about paying within a defensible time-frame i.e. say 10 days for a daily-delivered product that is sold within 5 days of receipt…
In other words, if a supplier is not paid on transfer of value, i.e. when the goods are sold to consumers, then, by definition, the supplier is providing extra value in the form of interest-free credit, and this should be factored into the supplier-customer equation…
What to do about it?
Whilst you may not be successful in negotiating a reduction in payment terms, it may be possible to approach the problem in a different way i.e. via compensating concessions.
How to do it?
Having calculated the cost of financing the current credit period (NamCalc), say 65 days, vs. the cost of the ideal reduced period, say 30 days, then the 35 day difference will be the amount the supplier needs to recover from the relationship via a combination of additional low-cost, high value concessions from the buyer...
These could include ‘last-minute’ extra facings to fill unexpected gaps, temporary exclusivity, and ‘free’ use of space for in-store theatre-promos ( the mults have increasing issues with redundant space).
In order to be able to agree a fair exchange of a combination of these concessions for credit period, it is important for the NAM to be able to calculate or at least estimate the incremental sales that can result from the each initiative, never forgetting that every move creates a precedent…
The key idea is having the courage to put credit period in the middle of the table, quantify it from each party’s point-of-view, and explore different options with the buyer that may go some way towards re-balancing joint value..
Simply regarding credit-period as a fixed norm not only misses a negotiable trick, but also represents increasing risk in the current climate…
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