After our story on GM’s letter to its non-core suppliers changing payment terms to 60 days, I received a flurry of emails that asked, in effect, are you out of your fucking mind? For example, “I do not know of anyone in the Supplier, Engineering, Consultancy or Technical world who has EVER been paid by GM in anything less than 90 days.” And “a friend that owns a Tier Two company has to be a real pain in the ass to GM Purchasing to get paid anywhere near 90 days. They told him once on the phone ‘We pay everybody 180 days payable…that’s our policy, what makes you so special that you think you should be paid in less than 90 days?'” (Interestingly, when he stopped shipping Just-in-Time parts to GM, they overnighted him a check.) In general, we’ve learned that The General’s suppliers generally get paid in 60 to 90 days. And “Even 60 days is not so bad from an OEM.” TTAC apologizes for any misconception created by our earier report.
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That was a productive error. :) We learned a lot about General Motors from the comments you got.
Indeed! And, at least TTAC comes out and SAYS when it was wrong. Very few other members of the Media do that.
Keep on keeping on, Robert!
Not that TTAC got it wrong, GM merely changed its official policy on payment. When they actually pay is another matter altogether. There are probably some legal reasons – most likely it stops any suppliers from withholding services/shipments within the sixty day window for non-payment. So in effect, GM got itself guaranteed 60 days, up from about 35 or so, before a supplier can put the kabosh on anything.
It all adds up though – soon enough suppliers are going to say “stop the madness” and that will crater GM’s cash flow.
180 days?? Doesn’t that mean that their suppliers are in hock up to their eyeballs with the banks in order to ship six months worth of product before getting paid. If GM goes down then suppliers go down. If the suppliers go down then the banks are in a world of hurt. If the banks hurt then the rest of us will hurt.
Just how much systemic risk has been built into this card house of an economy?
180 days?? Doesn’t that mean that their suppliers are in hock up to their eyeballs with the banks in order to ship six months worth of product before getting paid.
Disclosure: I work for a company that sells to GM. It’s like doing business with Walmart (whom we also sell, to, sadly) any many other massive businesses: you get in the door, and you get hooked on the revenue stream because eventually they do pay. Mind you, you’re just getting paid on goods you shipped six months ago, and you’ve shipped some more expecting payment six months from now.
If you can stand it, and have the cash flow to sustain it, it works reasonably well as you’ve got essentially a six-month cushion. This has been going on a long, long time. Ask anyone who has been shipping goods internationally by slow freight.
Even if there’s slow decay in ordering, you’re getting paid on receivables that were richer, and you can see it coming. Where it’s bad is if the supplier stiffs you again. Then you’re in trouble, which is exactly what Chrysler and GM are doing: shadow-stretching their payables out past 120 days.
The problem is twofold: this used to be the order of the day between big companies with rich cash flow. Now, there are a lot of smaller and/or leaner suppliers involved, and the big buyers are getting almost criminally lean. So, to you next point:
Just how much systemic risk has been built into this card house of an economy?
A lot. You’re seeing this now in Ontario where a lot of smaller suppliers are dying off. Magna isn’t at risk, but small fry (Polywheels comes to mind) are in real trouble.
I remember when this story broke. I was really surprised to see that GM paid in 30. I went a poked about our AR system as to GM’s payment terms. I saw a lot of >90 day balances and a few >120s.
They’re not alone: very few large customers pay in less than 60. What’s galling is that they’ll put you over a barrel for credits on fill rates, delivery lead times, freight and quick-order/quick-pay discounts, but won’t friggin’ pay in less than 60, 90 or 120 days.
Oh, and just try levvying late-payment charges. You’ll get a call from corporate purchasing threatening to leave a horse’s head in your bed the day the invoice is transmitted. Of course, they still claim “Oh, we can’t possibly process invoices that quickly”.
Sorry guys –
I am an account executive at a supplier – over the last three years, GM has gone from mid-range to our largest customer. The change in payment terms means almost nothing. I have seen their needs for high technology products like we supply surge as they work to make themselves a truly global OEM. The newest platforms that they have and are continuing to introduce are simply the most advanced in the entire industry. The ones who are complaining about the change in payment terms are just the old guard losing their position with GM.
Am I wrong to suspect that Toyota pays their bills on time, every time? That is, if you send a bill to Toyota, you are guaranteed have a check in your hand 29 days later.
If anybody has any knowledge to the contrary, please share.
@ Geotpf :
GM, Ford, Chrysler, Nissan, Toyota all pay their invoices based upon payment terms that THEY specify, AND on time. Changing payment terms does not mean that they are paying their invoices late.
With smaller customers, we can dictate payment terms, typically Net 30, but the larger organizations have their own accounting methods which dictate how they proceed. BTW, many (including GM) do not need to be ‘invoiced’ – they pay based upon receipt of the product.