Corporate Darwinism Or Biting The Hand That Feeds

From an analysis of recent corporate earnings "conducted for The Wall Street Journal by REL Consultancy, the working-capital division of business-consulting firm Hackett Group in Atlanta", this morning's WSJ reports that "companies with annual revenue of more than $5 billion sped up their collection of cash from customers while slowing their own payments to suppliers [and that] firms with less than $500 million in annual sales, on the other hand, generally took longer to collect cash and paid their bills faster than in the same period a year ago".

According to REL's analysis "Companies with more than $5 billion in annual revenue took an average 55.8 days to pay suppliers and trade creditors in the second quarter, up 5% from 53.2 days a year earlier ... They also collected faster on their bills, taking an average 41 days versus 41.9 days a year earlier. Businesses with less than $500 million in sales paid vendors in an average 40.1 days, down 6.5% from 42.9 days, [and] they took roughly 8% longer to collect payments, or an average 58.9 days, versus 54.4 days a year earlier."

Importantly, the article points out that "If companies force untenable terms on their suppliers, they risk putting vendors out of business ... [potentially] disrupting their own operations" and that "Consumer-products companies ... are often able to negotiate more aggressively with customers and suppliers than industrial-products manufacturers, for whom the supply chain is more carefully tailored and rigid." While no one doubts that the bully pulpit is alive and well, we can hope that the $5 billion plus club has also made significant investments in supplier visibility and makes time to communicate with the lower half of the food chain.

Stay tuned for continuing coverage of this analysis in the coming days on Spend Matters.

William Busch

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