Collecting client payment in 30-days or so is the standard in most industries. To have a positive overall cash flow and to make the most of your capital, you aim to pay your suppliers in 30-days and expect your clients to do the same. But now some major United States and International food manufacturers and food packaging companies are asking suppliers for 75-, 90-, and even 120-day terms to pay their bills.
These inequitable payment terms are enabling the big corporations to make the most of their capital. It also enables them to have extra freed-up cash to take on additional projects and opportunities. Yet these broadly unequal terms are making cash flow very difficult for suppliers. Ironically these corporations require payment terms of 30-days from their own customers.
Factoring allows suppliers to get paid on their terms
This new trend in the food manufacturing sector is greatly harming suppliers. Many of these suppliers are small businesses without the capital, assets, or legal teams to successfully negotiate better terms. These 75- and 90-day payment terms are actually costing them. When money owed to the suppliers is tied up in receivables, it is inaccessible to them. To compensate for the delay and the inability to access their own money, some suppliers have increased their prices. Still others are threatening to no longer be that company’s supplier unless payment terms are evenhanded.
Suppliers can better manage their cash flow by factoring receivables
Other suppliers are fighting back by requiring companies to sign a prompt payment code, which requires the business to pay within 60-days. Yet many small businesses are not in a position to walk away from the contract or relationship despite poor payment terms. Suppliers can work with invoice factoring companies to sell their invoices and then collect payment for them right away. Despite the costs associated with factoring receivables, it may actually be less expensive than waiting 90-days or more to collect payment on what the business is owed. Invoice factoring companies also handle collections and accounts receivables management duties freeing up your time. Many suppliers find factoring accounts receivables favorable to extended payment terms.