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The caller may try to strike a tone as corporately and politely as possible. But the gist still smacks of a mob enforcer: You owe me money. When are you paying me?
With the pandemic continuing its brutal assault on top-line revenues, companies across the globe are finding themselves in the awkward position of not paying up on bills with business partners and vendors alike—and not promising when they will. The hope, of course, is that the delinquency ends as soon as the pandemic fades, but that’s still tough on the partners and contractors, which have their own bills to pay.
The financial impact is starting to make itself known. As the quarterly earnings season wraps up, publicly traded companies from paint manufacturers to entertainment powerhouses have set aside hundreds of millions of dollars more for uncollectible bills. But while they may have set aside the money, there are thousands of conversations daily trying to work out payment. How those talks go likely will determine not only when the bills are paid but whether the companies will do business together in the future. “It’s a test of how strategic your business relationship is,” says Nathan Blain, Korn Ferry’s global solution leader of organizational strategy.
Not paying bills on time isn’t new, of course; the debt collection industry is built on the fact that individuals and companies sometimes are delinquent on invoices. But experts say the pandemic could create an epidemic of delinquency. Already, Sidetrade, a payment software firm, says that nearly 31% of the corporate invoices in western Europe it helps process have gone unpaid at least 10 days past their due date. (Before the pandemic, the average was about 19%.)
Experts say the onus is on procurement officers to develop tight relationships with their counterparts at suppliers and customers. In pre-pandemic times, that meant building relationships on flexibility and collaboration, not just cost. Even as the coronavirus has disrupted business in China, some farsighted procurement officers started looking to bring in cash quickly. Some airlines, for instance, worried about a sharp decline in travel, told their debtors that if they paid half of what they owed immediately, the airline would consider the debt paid, says James Day, leader of Korn Ferry’s Supply Chain, Operations & Procurement Practice Centre of Expertise in Europe, the Middle East, and Africa.
Now, procurement officers have to get very creative, giving some customers extra time to pay in exchange for exclusive supply agreements, additional payments later, or other incentives. Payment terms are being ripped up daily. “The people who are really good at this are worth their weight in gold,” Blain says. For her part, Cheryl D'Cruz-Young, a Korn Ferry senior client partner who leads the firm's chief procurement officer practice, says that typically involves strong communication and compassion skills. "Understanding the true situation a debtor is facing removes the wishful thinking and allows for effective planning (i.e., when payment will actually arrive)," she says.
How creative they get may depend on how critical the relationship is. If the debtor supplies a critical service or product, a payee may be willing to negotiate. The whole situation gets more complicated when a company is both a supplier and a customer to another organization. A tech software company, for example, could be trying to collect payment from an automaker that uses its services, but at the same time delaying payment to the same automaker for the cars it bought for its sales force. “One pragmatic solution has been to align payment terms to 30/30 or 60/60 whereas previously they may have been unequal," says D'Cruz-Young.
However, there are some companies that just won’t pay. Some retailers have told their clothing suppliers to take their clothes back because they won’t pay, Day says. It’s a strategy that could save cash for the debtor now, but it could cost them in the long run. “Organizations that owe are taking a ruthless approach,” says Day. “They are taking a chance that they’ll go out of business.”