Corporate Strategy

Why do payable days matter?

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Payable Days' is the number of days a company takes to pay its suppliers. Investors often learn in 'Finance 101' courses that the longer a company
takes to pay its suppliers the stronger its bargaining power is with them. Consequently, this is considered as key evidence of a strong franchise.

We beg to differ 

High-quality companies require a healthy supply chain. And a healthy supply chain requires suppliers getting paid within a reasonable time frame. Why is this important? Long payment cycles leave most suppliers with little choice but to borrow at high interest rates to meet cash flow needs or, eventually, dilute quality standards. Smaller and fragmented suppliers, such as farmers, are disproportionately affected by one-sided payment terms. Banks often treat such borrowers as high risk, compounding their cash flow problems. 

A bankrupt, low quality or an unpredictable supply chain can do more harm to a company's sustainability than the savings accrued in the short-term by squeezing it. Paying suppliers directly and in reasonable time is not only the right thing to do but also the smart thing to do.

It is the right thing to do as there is a clear and quantifiable positive impact on the lives of many, particularly smaller suppliers who have been disenfranchised over decades. A more sensible approach impacts numerous Sustainable Development Goals (SDGs), including, but not limited to, no poverty, zero hunger, reduced inequality, decent work and sustainable communities. This is impact at scale. 

It is also the smart thing to do because trust is built by treating suppliers well. A trusted supplier stays with you during good and bad times and will ensure quality. This positive circle of trust creates long-term entry barriers that are often underestimated by companies and investors.