When Receivables Rise

One way that many companies have increased cash conversion cycles is to increase the accounts payable period. While this helps the company, it also means that the supplier now has a longer accounts receivable period. Large companies will often unilaterally inform small suppliers that they will increase the payables period. For small companies, the resulting increase in the receivables period can be devastating. During the recent recession, many small suppliers accepted the new terms forced on them because they were afraid of losing business. But many small suppliers are starting to fight back. For example, when one company was informed by a customer that they would be increasing the payables period from 30 days to 45 days, the supplier stated that their quote was based on 30 days, not 45 days. An increase in the payables period would have to result in a 10 percent price increase. The payables period went back to 30 days. Although many small suppliers feel trapped by large customers, there are often ways to reach a compromise that satisfies both parties.