P&G’s claim of “win-win” by delaying supplier payments but enabling borrowing at lower rates

An article in the Wall Street Journal (April 16.2013) describes a plan by Proctor & Gamble to delay supplier payments beyond 60 days as against the current 45 days, to free up over $2 billion in cash. Suppliers would be permitted to borrow from a bank after 15 days at interest rates that are based on P&G’s borrowing rates. The company claims that the freeing up of this cash for P&G and the consequent access to low borrowing rates, will be win-win for suppliers and the company. But suppliers like Federal Mogul claim that such payment delays by large companies, now becoming more common, hurt supplier margins and may require them to give up on doing business with some of these buyers. Is this shift in payment terms to suppliers a “win-Win” proposition ? Will such agreements benefit suppliers with higher borrowing costs than P&G ? Will product costs have to increase, thus increase Cost-of-Goods sold, to cover the added working capital costs by suppliers ?

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About aviyer2010

Professor
This entry was posted in Collaboration, Operations Management, Supply Chain Issues and tagged , , , , , . Bookmark the permalink.

One Response to P&G’s claim of “win-win” by delaying supplier payments but enabling borrowing at lower rates

  1. Win – win? Their $2bn in cash is coming straight out of the pockets of the suppliers! This means that suppliers have to carry AR for a longer period, thus raising borrowing costs for them! Sometimes a wonder where corporate America picks up their ‘smarts’?

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