1. More Reasons Why Customers (the Small and Mid-Sized are Joining the Largest) are Adopting a Terms Push Back Strategy and What Suppliers Can Do to Fight Back
Frank Sebastian
Director of AR, Credit and Collections
Larry Lipschutz, CCE
Director of Credit & Collections
Scott E. Blakeley, Esq

2. The Supply Chain and Trade Credit
Trade credit as driver of the economy
Less expensive than external financing
The origin of TPS: Credit crunch of 2008
Large companies sitting on record cash holdings but increasing the days to pay suppliers
Customers stretching supplier terms to preserve cash and fill working capital gaps
Inventory purchases are biggest cash drains
Customers extending payables has become a best practice

3. The Supply Chain and Trade Credit
Source: Credit Research Foundation

4. A Customer’s Request vs
A Customer’s Request vs. Demand for Extended Terms: How Indispensable is the Customer (and the Supplier)?
The Voice of the Supplier’s Credit, Sales and Management Teams.

5. The Supply Chain and Trade Credit
Customer strategy for extending supplier terms
Financially sound customer
Financially struggling customer
Re-credit score and supplier due diligence
Formal vs. ad hoc TPS
Accommodative vs. Punitive
The small to medium sized customer vs. the large customer

6. Key Terms for Large Company TPS
Cash Conversion Cycle(CCC)- Number of days to convert account receivables into cash flow.
Days Payables Outstanding(DPO)- Number of days payables outstanding relative to purchases of inventory (cost of goods sold)
Days Sales Outstanding(DSO)- Sales per day relative to average receivables
Days Inventory Outstanding(DIO)- Cost of goods sold per day relative to average inventory levels

7. The Supply Chain and Trade Credit
Added Reasons Customers are Rolling Out TPS
Benchmarking: Customer’s Competitors Forcing TPS
Customer Mergers
Supply Chain Financing Moves Downstream
The Press and the Cottage Industry of Consultants
International Influence

8. PAYMENT TERMS AND SUPPLY CHAIN FINANCING COSTS
COST OF CARRYING A/R
Ending A/R
Annual Borrowing rate
Daily cost of borrowing - Annual Rate / 360
Daily cost of carrying the A/R (Daily Rate x AR Amt)
Example
20,000,000 4% %
2,222.22
Line #
New Terms
Former Terms
SCF Terms, Option 1
SCF Terms, Option 2
2% 10, N30
Formula 1
Invoice Amount
500,000 2
Payment Terms 75 30 15 10
For SCF, Days until Supplier Bank partner pays 3
Discount Amount 0% 2%
Cash Discount for Early Pay 4
Suppliers Interest Rate 4%
Either borrowing rate or Internal Rate of Return 5
Daily Rate %
Line 4 / 360 6
SCF Rate
n/a
3.25%
Supplier's Bank Interest Rate for Vendors 7
Daily SCF Rate - %
Line 6 / 360 8
Days Carried
Same as Payment terms, Line 2 9
Suppliers Carrying Cost
4,167
1,667
833
556
Line 5 x Line 8 x Line 1
Days Financed 60 45
For SCF, New Terms (75) - Line 2 11
Finance Charge (Discount)
2,708
2,031
Line 7 x Line 10 x Line 1 12
Cash Discount
10,000
Line 3 x Line 1 13
Payment
497,292
497,969
490,000
Line 1 - Line 9 (or Line 10, for discount terms) 14
Net Payment
495,833
498,333
496,458
496,302
489,444
Line 13 - Line 9
Effective Discount
0.830%
0.333%
0.708%
0.740%
2.111%
(Line 1 - Line 14)/ Inv. Amount
PAYMENT TERMS AND SUPPLY CHAIN FINANCING COSTS

9. Government Response to TPS
U.S.
Supplier Pay
Voluntary program aimed at larger companies – no maximum number of days to pay. Rather, these companies sign a pledge to reduce their DPO with smaller suppliers
European Union (EU) Countries
EU has adopted legislation for EU countries to have companies sign up for a supplier Prompt Pay Rule (PPR)

10. Credit Team’s Form Response to TPS
8677 Logo Athletic Court Indianapolis, Indiana T

11. Supplier Strategy for Dealing with TPS

12. Supplier Strategy for Dealing with TPS
Contract Controls

13. Supplier Strategy for Dealing with TPS

14. U.S. Public Companies with Industry Leading DPO’s
Exhibit A
Company
Industry Rank, Avg. DPO in Latest Quarter vs. Industry Peers
Historical Performance Rank, Avg. DPO in Latest Quarter vs. Co.’s Last 12 Quarters
Primary Industry
Pitney Bowes 99
100
Office Services and Supplies
Arena Pharmaceuticals
Biotechnology
ITC Holding 85
Electric Utilities
Expedia 92
Internet, Retail
Goodrich Petroleum 97 89
Oil and Gas Exploration and Production
Advance Auto Parts 96
Automotive Retail
Cheniere Energy Partners
Oil and Gas Storage and Transportation
O’Reilly Automotive 95
Sotheby’s 94
Specialized Consumer Services
MarkWest Energy Partners
Cheniere Energy
Edwards Lifesciences
Healthcare Equipment
South Jersey Industries 91
Gas Utilities
Barnes & Noble
Specialty Stores
SemGroup 88
j2 Global 87
Internet Software and Services
Xilinx 86
Semiconductors
Informatica 84
Application Software
Best Buy
Computer and Electronics Retail
Pioneer Natural Gas Resources
Molycorp 83
Diversified Metals and Mining
Dell
Computer Hardware
Waters 82
Life Science Tools and Services
Actavis
Pharmaceuticals
Carrizo Oil & Gas 81
Coty 80
Personal Products
Universal Health Services
Healthcare Facilities
U.S. Public Companies with Industry Leading DPO’s

15. Meet the Competition Form
Exhibit B
[Customer’s Letterhead]
Dear [Vendor (your company)],
This letter confirms that [Competitor] has offered us a sales arrangement for extended terms which includes:
Product/Service involved:______________________________________
Terms of payment:____________________________________________
Date of offer:________________________________________________
Quantity of product/service involved:_____________________________
This information is provided to allow [Supplier] to meet the offer of [Competitor].
Sincerely,
[Customer]
Meet the Competition Form

16. Trends in Extended Terms Survey
What is your firms annual sales revenue?
In the last 12 months, how many existing customers requested extended payment terms beyond standard? What is generally your first action? Is there a formal policy to address these? Is the Robinson Patman Act considered? What are the driving factors that lead to accepting these?
What percentage offered a Supplier Financing Option as a means to discount invoices before payment terms maturity? How does your team view the recent increase in these types of requests and the effect on working capital? When you accept requests, do you charge interest for additional carrying costs or charge back discount fees incurred from SFO?
Have you lost business/revenue after refusing a request? Do you think a company’s brand strength/recognition/size can help refusing these requests without loss of revenue?
Do you believe stronger legislation should be passed to protect smaller regional suppliers with lower brand recognition, against larger companies demanding extensive credit terms?