In working with global companies across many industries, we have found that many frequently face similar hurdles when negotiating terms extension. Suppliers are often initially unwilling to accept a terms extension proposal because of liquidity needs, poor receivables turnover, and other financial issues. Some suppliers are resistant to terms extension if the proposed terms are well out of line with their own industry standard terms. In other situations, suppliers may be hesitant to extend credit terms to a customer whom they do not believe to be a creditworthy entity.
Companies often utilize supply chain finance (SCF) as a tool to bridge the gap between their own organization’s working capital goals and their suppliers’. An important first step, prior to leveraging SCF as a working capital tool, is to work with your supply chain finance provider to assess your working capital targets and select suppliers who are ideal candidates for payment terms extension. This can help minimize friction that may be caused between your organization and its key suppliers.