Wal-Mart extends supplier pay terms, but it's not all bad

Wal-Mart is the largest company in the world by revenue, as well as the world’s largest private employer. So it’s only natural that whenever the retail giant makes a change in its policies, it generates close scrutiny from the media and public at large.

Here in the U.S., The City Wire reported last month that Wal-Mart has rolled out extended payment terms to 10,000 of its American suppliers of varying sizes. Wal-Mart’s days payable outstanding (DPO) number jumped up from 20 days to 90 days — no small thing for suppliers dependent on these massive invoice payments.

Response to this story has not been great, but I believe there is a positive news in here as well.

I would draw attention to one detail of the article that I believe has been overlooked:

Some suppliers have said Wal-Mart offered to negotiate a low interest credit line with third party lenders who will pay the supplier early so long as the retailer get’s the 2% discount out more than 100 days.

Extended payment terms are not a bad thing when they are coupled with early payment options at attractive rates. I would argue that Wal-Mart has an opportunity here to actually give their suppliers better access to capital than what they previously offered. Yes, DPO might increase by a large number, and that scares many people right off the bat. But the supplier finance world is more complex than it used to be, and DPO is not the only indicator of fair payment terms these days. The quote above hints that Wal-Mart may be simultaneously offering early payment using a supply chain finance solution.

Early real-time payment software could give Wal-Mart suppliers access to capital in, say, 10 days rather than the 20 days that they had previously experienced. And because Wal-Mart is a worldwide retail behemoth, they should have no trouble securing outstanding APR on these early invoice payments. If you could ask 10,000 suppliers whether or not they’d prefer a Net 20 waiting period versus payment in half the time at an APR between 0.8% – 2.5%, what do you think they would say?

Our experience has taught us that most suppliers would prefer to take the quick money and run.