Large Conglomerates Feel The Late Payments Pain

While small vendors are particularly vulnerable to lengthening B2B payment terms, the latest data emerging from global supply chains reveal that even the largest organizations are bracing for impact from delayed payments.

Reports in the Financial Times revealed major conglomerates, including Disney and Amazon are each setting aside millions of dollars in anticipation of late receivables, while cash flows throughout apparel supply chains continue to face a damaging squeeze.

“It’s just industry-wide carnage,” said Goodwin Proctor partner Howard Steel in an interview with the Financial Times. “Everybody is stretching payables throughout the supply chain.”

“In a lot of sectors right now there are major issues with folks either looking at delayed payment terms or defaulting on payments,” added KPMG principal Reza Van Roosmalen.

Not every industry is sitting back, however.

According to Campaign Live reports, the advertising agency arena is demanding timely payments from clients, with a new coalition of ad agencies now calling for responsible payment habits.

In a statement, VoxComm said, “We are hearing from our members all around the world that many of those same ‘corporately responsible’ companies are using the [Covid-19] crisis to delay paying their agencies. Late payment is a pernicious habit that even cash-rich companies employ to falsely enhance their liquidity ratios. It is directly at odds with their avowed policy of CSR.”

Those delayed payments have knock-on consequences, VoxComm continued, including the struggle to make payroll and pay their own freelancers and subcontractors.

“Although some clients are struggling financially themselves, in many cases it’s not a case of ‘can’t pay’, it’s ‘won’t pay’,” said Paul Bainsfair, director general of the Institute of Practitioners in Advertising, in an interview with the publication.

Below, PYMNTS runs through the latest data points of late payment practices — and efforts to combat them — across an array of industries.

130 small suppliers in Florida will see accelerated payments from L3Harris Technologies, according to Space Coast Daily. The company is vowing to move more than $100 million worth of payables to small businesses in Florida and beyond, with other initiatives including investment in staffing and equipment also focused on bolstering the company’s vendor base.

$380 million in credit loss allowances were posted by Amazon in Q1, the Financial Times reported, the result of Amazon expecting delayed payments from corporate customers of its Amazon Web Services unit. Disney’s own allowances for credit losses increased that quarter to $535 million, citing “liquidity issues” and “impacted timely payments” from clients.

$29 million of additional bad debt for Yum Brands in Q1 can be attributed to franchisees of KFC and Pizza Hut delaying their payments to the firm, the FT noted. Yum Brands Chief Financial Officer Chris Turner reportedly told the publication, “It’s a really unprecedented situation and the pandemic is causing strain on our franchisees, particularly in markets where stores have closed.”

$35 billion in cash reserves will enable Ford Motor Co. to deploy an early payment discount program, an effort to accelerate payments to its suppliers, the company said. Reports in Nasdaq said factory shutdowns have cost the company billions of dollars, but bond sales and credit lines are helping the firm’s balance sheet. It’s unclear how much of those reserves will be used to pay vendors early, but a spokesperson for the company said the program remains in its early stages, with plans to expand it later on. While early payment discount programs may accelerate cash flow to vendors, it may also garner negative feedback, with some critics arguing that the initiative forces vendors to accept discounted rates in order to receive payment for goods and services already rendered.