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How does this trick save you money? I'm not really clear on the details of enterprise payments.

tankenmate 12y ago
It's designed to help the enterprise customer not you; i.e. they aim to get paid for services or products that you provide that they resell (directly or indirectly) before they pay you. Example; one day 1 you provide a service to enterprise customer (the clock starts ticking), on day 2 they resell that service (with added value etc). The enterprise customer's customers either pay upfront (B2C), day 5 through 9 for customers paying by credit card, bank transfer etc, or pay on day 32 (B2B). Then on day 60 they pay you. So in the case of B2C your enterprise customer has cash in the bank earning interest for between 51 to 60 days, and for B2B customers for 28 days. So they always have a positive bank balance (no need for a rolling line of credit and risks involved), and they earn some extra cash because of it. EDIT: further technical info. The technical accounting term for this is positive cash flow. The opposite (paying you providers before getting paid by your customers) is obviously negative cash flow (like a old fashioned mom and pop shop; they buy the stock before their customers pay for it. Please note that modern supermarkets work nothing like this).
fludlight 12y ago
It's an interest free loan from their suppliers. They also give interest free loans to their customers, so it's a two way street. Ultimately, they want to get more free loans from their suppliers than they give to their customers
- flomo 12y ago
  Just to reinforce this, I worked with a F50 which offered vendors standardized tiers of quicker payments, in return for discounts which were (much) more than whatever their expected interest income would be. The terms weren't negotiated, they were just spit out of spreadsheet based on the interest rate. I understand the importance of "cash flow", but the real goal seemed to be shaving every nickel to maximize profitability on the deal.
  - fludlight 12y ago
    The relative importance of cash flow vs. income is dependent on the availability of capital. A business might take that 2% discount IBM offers to pay now vs. in a month if they are out of working capital and worried about making payroll.
- sebastianconcpt 12y ago
  Yeah, I've heard that Carrefour does it that way

It's designed to help the enterprise customer not you; i.e. they aim to get paid for services or products that you provide that they resell (directly or indirectly) before they pay you. Example; one day 1 you provide a service to enterprise customer (the clock starts ticking), on day 2 they resell that service (with added value etc). The enterprise customer's customers either pay upfront (B2C), day 5 through 9 for customers paying by credit card, bank transfer etc, or pay on day 32 (B2B). Then on day 60 they pay you. So in the case of B2C your enterprise customer has cash in the bank earning interest for between 51 to 60 days, and for B2B customers for 28 days. So they always have a positive bank balance (no need for a rolling line of credit and risks involved), and they earn some extra cash because of it. EDIT: further technical info. The technical accounting term for this is positive cash flow. The opposite (paying you providers before getting paid by your customers) is obviously negative cash flow (like a old fashioned mom and pop shop; they buy the stock before their customers pay for it. Please note that modern supermarkets work nothing like this).

fludlight 12y ago

It's an interest free loan from their suppliers. They also give interest free loans to their customers, so it's a two way street. Ultimately, they want to get more free loans from their suppliers than they give to their customers

flomo 12y ago
Just to reinforce this, I worked with a F50 which offered vendors standardized tiers of quicker payments, in return for discounts which were (much) more than whatever their expected interest income would be. The terms weren't negotiated, they were just spit out of spreadsheet based on the interest rate. I understand the importance of "cash flow", but the real goal seemed to be shaving every nickel to maximize profitability on the deal.
- fludlight 12y ago
  The relative importance of cash flow vs. income is dependent on the availability of capital. A business might take that 2% discount IBM offers to pay now vs. in a month if they are out of working capital and worried about making payroll.
sebastianconcpt 12y ago
Yeah, I've heard that Carrefour does it that way