Question

Consider Procter & Gamble’s decision to extend their timeline to pay suppliers. Knowing that this would put suppliers in a tight spot, consider how suppliers would respond to this action (e.g. would they change their terms? stop supplying goods?).

Now consider the reaction suppliers would have had if this were a small- or mid-sized company. How might this differ from the response to Procter & Gamble? Are there any examples of this in the news?

Answer 1

P&G is a very old and good company. It has created a brand name for itself in the market by providing branded packaged goods to the consumers across the world. By increasing the timeline to pay suppliers, Procter and Gamble tries to reduce the amount of cash tied up in day to day operations of the firm. It means it will take more number of days to pay to the suppliers now. However, as P&G has created goodwill for itself in the market, suppliers will definitely not stop supplying goods to this company. They might also not change their terms in terms of discount or the quantity supplied to P&G as they may fear loosing a good and valued customers. Maximum, suppliers may negotiate the terms of credit days in a very polite manner with the firm but they may not take any strict action against the firm.

Instead, if the company would have been a small or mid sized company than P&G, then definitely suppliers would have taken little strict action against the firm. If the company would have been very small without a brand name in the market, then definitely the suppliers would have stopped supplying goods for fear of not getting their payment at all despite increasing the credit duration. For a mid, sized company, the suppliers might have changed their terms of discount. Or even the suppliers would have negotiated hard to reduce the credit period to get payment on time. The suppliers would even have denied increasing the credit duration.

The suppliers would definitely retain the relationship with brand of P&G despite stricter credit norms. They would not mind negotiating or even being stricter with small and mid sized firms in terms of credit duration.