Jack Be Nimble: Suppliers Can Adjust to Extended Payment Terms

Who among us have never heard the nursery rhyme of “Jack Be Nimble?”

Jack be nimble,

Jack be quick,

Jack jump over

The candlestick.

As many parents know, perusing through fairy tales and nursery rhymes are far more entertaining to

kids than you reading and indulging in your daily business publication.  That is, unless your kids devote

their artistic “passions” by doodling all over The Wall Street Journal…and yes, I still do subscribe to the

paper version.

But this simple rhyme, which I sang to my children the other night, had me thinking of a recent article

that indicated how small manufacturers are hardest hit by payment delays and the gap is widening.

Humor me for a moment…

Not long ago, the actual game of jumping over candlesticks was a form of sport.  Good luck was often

said to be signaled by clearing a candle without extinguishing the flame. 

If I associate here extended payment terms as the “flame” or obstacle that “Jack” (suppliers) must

navigate, successfully clearing the candle is then due to the available options/efforts put in to

overcoming that very same obstacle.

To put this in context, extended payment terms is pervasive (often perceived by suppliers as

unfavorable) across most industries and is a true business challenge that globally affects suppliers.  And

as Jeff Longhurst, chief executive of the Asset Based Finance Association (ABFA) said in the article,

extending payment terms “doesn’t just impact on the business in question,” but has a “cumulative

negative effect” on extended supply chains.

While I do agree that extending payment terms by itself typically has a negative effect on suppliers,

many buying organizations have been strengthening their supply chains by simultaneously offering

additional opportunities that deliver even greater benefits to small/medium suppliers.

For companies able to pay early, discount management and dynamic discounting in exchange for early

payments offer 1) the potential of significant returns on cash for the buyer and 2) provide suppliers an

injection of liquidity to often help fund their businesses.  Another option, rather than buyers using their

own cash, is offering early payment using third party funding, better known as Supply Chain Financing.

Obviously, discounting and supply chain finance are but two options.  But viable options they are,

especially if working capital optimization projects continue to rise across all industries and organizations.

Bottom-line, buying organizations will continue to extend payment terms to increase their working

capital and provide more cash stability.  Forward thinking companies of these that buy-in and invest in

their extended supply chains overall success, by offering win-win outcomes, will reap even more

collaborative partnerships and untapped business growth.

Now that’s a story, I believe will not ruffle any of old Mother Goose’s feathers.