Vendor Payment Habits Shift In A Pandemic-Fueled Cash Flow Squeeze

The pandemic continues to drive forward the conversation about B2B supplier payment habits, as some retailers vow to maintain timely payment terms to promote the cash flow of their vendor partners, while others choose to delay payment to preserve their own working capital needs. The latest data shows shifts on both sides, while Australian lawmakers have introduced legislation in an effort to support small suppliers’ need for timely payment.

A 23 percent decline in first-quarter sales won’t stop Under Armour from paying suppliers, EcoTextile News recently reported. The athletic wear company has reportedly agreed to continue paying its vendors in full and on time for orders that were placed before the pandemic disrupted supply chains. As a result of sales volume declines, Under Armour is reportedly renegotiating contracts with some of the athlete partners who promote its products.

Forty-five percent of apparel companies are negotiating with their vendors to lower costs, according to new data from Mckinsey. While cutting costs could negatively affect suppliers, the strategy could support their efforts to get paid on time. Larger organizations are more involved in supplier cost-cutting negotiations than smaller businesses, while 22 percent of professionals said they are not engaging in any measures to help reduce the financial stress of their vendor base. At the same time, however, 19 percent said their firms are actually paying their vendors early.

Ninety-day payment terms are the new normal for 3M suppliers, the conglomerate told its vendors earlier this month, according to recent StarTribune reports. 3M had traditionally established net-60 day terms with its vendors, but in a letter sent by 3M Vice President of Strategic Sourcing and Packaging Solutions Deb Fronczak, the lengthened payment terms will be implemented “in an effort to remain competitive with prevailing market trends.” A spokesperson for the company told the publication that many of 3M’s vendors are already on the 90-day term agreement.

Among Australia’s largest companies and government entities, 2,500 would have to report supplier payment practices under a new proposed law aimed at combating late supplier payments. The legislation has been introduced to Parliament and would apply to businesses with more than $100 million in annual turnover. Australia’s Small Business Ombudsman Kate Carnell noted in a statement that “prompt payment times are critical” to the survival of businesses hit by the pandemic. The legislation comes as more reports of delayed supplier payments emerge throughout Australia, with firms including the Sussan Group and Supercheap Auto reportedly advising their vendor bases of lengthening payment terms.

On average, $3,952 is owed to each supplier of the India-based rental startup ZiffyHomes, according to recent LiveMint reports. The publication said the company, backed by Y Combinator, is deferring vendor payments for leased properties, citing unnamed sources. In addition to reportedly delaying supplier payments, ZiffyHomes is also cutting employee pay, halting new hirings and considering layoffs. According to reports, three ZiffyHomes vendors have reportedly been informed by the company that it may file for bankruptcy, potentially adding further supplier payment disruptions.

Three billion dollars’ worth of contract payments will be accelerated by the U.S. Department of Defense, according to Federal News Network reports. As of early May, the DOD said it has already accelerated $1.2 billion worth of vendor payments as it continues to advise the Pentagon’s contract administrators to initiate progress payments and support the cash flow of government suppliers.