Every finance department has made the call to sit on their money, but it’s now a trend happening more than ever. Because of this shift, suppliers are feeling the effects of the change from net 30 to net 90 or 120. CFOs have a phrase for these changes, calling it a way to “optimize working capital.” In reality, however, extending payment terms creates stagnate economic growth for both buyers and suppliers.
It’s time we rethink working capital optimization on a global scale and move toward an ethical supply chain. Your supply chain is arguably one of your business’s most critical assets, and it’s time to start engaging with suppliers as a part of your team rather than an adversary. This means that the key to your building a solid supply chain is making good on the partnership and paying suppliers early or on time.
What if every buyer paid suppliers at net 90? Can suppliers sustain themselves for the next 90 days, or will your business and other organizations that extended payment terms contribute to the closing of that supplier’s doors?
Creating an ethical supply chain should be your business mandate. In fact, calls to action have come in the form of mandates from the European Union and the United Kingdom and the ethical supply chain is quickly becoming a hot topic at business and finance conferences worldwide.
Why? The bottom line is, everyday you pay your suppliers late impacts their business, the economy, and ultimately job growth. Investing in the supply chain is just the right thing to do. And there are simple ways to make investing in the supply chain a win-win for your business and your suppliers.
All it takes is a simple change of mindset: Invest in your suppliers.