Direct computer seller Dell has been entered into a late payments Hall of Shame for unilaterally adding an extra 15 days to the time it aims to settle invoices. Dell wrote to suppliers telling them it was changing T&Cs from 10 July because of "current economic conditions". It will now settle invoices in 65 days rather than 50. …
Write them back?
Write them back and say "actually, 28 days for an invoice sounds enough. More than that and we'll take you to court"? Of course, this might mean that you get your contract cancelled, but having less turnover versus being driven out of business by Dell: I know which I'd take.
First sign of trouble
Purchasers lengthening their payment terms can be the first sign of cashflow and liquidity problems. The business savings are less than 0.1% so neglible. The only other reason is because of problems with cash management. Would worry me as a supplier.
Savings of .1% not so neglible at scale
From Dell's quarterly statement... that had 12.431 billion in expenses in the last quarter. Let's assume 10% of the costs are going to these people (since Dell for the most part just does final assembly of other people parts: rather than actually make chips, motherboards, etc this percentage should be higher). 10% of 12.4 billion is 1.24 billion, .001 of 1.24 billion is 1.24 million/quarter.
Not sure about you, but 3.72 million in yearly income by just delaying payment a few days isn't neglible... as long as you don't piss off your supliers so much it cause a mfg chain problem seems like a really easy way for a huge organization to pad the bottom line with limited risk organization and hardly any cost at all (if it causes problems for critical suppliers, you can just start paying them sooner... no real capex/opex investment required for the change).
Scale multipled by little number looks smart (though still tiny in the great scheme of things). But you also have scale multipled by additional hassle of making it happen. I wonder what the size of the Dell bought ledger and purchasing team is? I wonder how much additional work will be created trying to fix the problem they are creating? If interest rates were high it would make business sense. Low interest rates... It's a cash flow problem.
And then the tax man
I had to borrow money from my mortgage to pay my taxes when contracting for a well known colourful mobile phone company which seemed to have a strategy of paying late.
In the end I changed my terms to payment-in-advance. I didn't get any more work, but I didn't mind. Who wants to work for hassle if you can work for money somewhere else?
Dell is a bank
I once read an article that explained that Dell doesn't make money from selling people computers, it makes money from acting like a bank.
Ah, here it (or something like it) is: http://www.zdnet.com/blog/berlind/the-problem-at-dell-wasnt-the-ceo-its-the-commodity-r-d/329
The longer Dell keeps its customers' money before having to pay its own suppliers, the more money they make (in interest). They are obviously feeling the pinch at the moment, so they've (unilaterally) decided to keep it a bit longer and make a bit more. Put another way: Dell's suppliers pay *their* banks interest on loans (so they can afford to make the kit they've sent to Dell), whilst Dell sell the kit to their customers (I heard that it usually only takes them a day or so), and then earn that same money *back* from the bank as interest. And keep it.
Using other peoples money
That's how a lot of companies work, their shops collect cash and they have credit with their suppliers. Assuming they are not in financial trouble they can then play with the cash for a few weeks and make even more money. This also makes it more difficult for smaller companies to compete when the large ones are not always making their profit from their public retail business you are trying to compete against.
It's fairly common for the larger companies to decide to change terms and you have to decide if you accept them or stop trading with them. Happens all the time, smaller companies getting squeezed.
Dull will manipulate all that they can for profit. Michael Donut needs the cash to pay for his Krispy Kreme lunch.
Dell = Kwik Save
Aha, so Dell use the Kwik Save model of business. That worked well....
Dell are well known for being slow to pay............
And it is not just to smaller companies, it includes the likes of Intel. I have been sat in the reception of their HQ in Bracknell and witnessed baliffs coming in with the electricity supply company to disconnect their electricity for non payment of their bills, needless to say a cheque was presented pretty quickly. They used to have goods delivered to an outside building, and only started the settlement persiod from ythe time the goods entered the main building. This could be anything upto a month after the orginal receiving date!
Name and shmae them, not that it will make much difference.
I think I'd write back and tell them that on the 51st day there's a surcharge equal to the original sum (i.e. 100% interest) and I stop supplying until any bill over 50 days old is paid.
However, I'd probably also be looking for alternative work shortly afterwards.
Same the world over
Though I did manage to win once by including my own T&Cs to add penalty for payment after 30 days - the penalty was MY overdraft rate plus 5%
South Africa stopped this crap by making companies hold a liability for damages should they make ANY payment late, the liability to be held in a non interest escrow account and was equal to the TOTAL outstanding payments for the last five years - now that sorted the buggers out
Bunch of bankers
"Dell doesn't make money from selling people computers, it makes money from acting like a bank."
Wasn't that the business model in much of GEC as well, albeit with more expensive parts and longer timescales, but still with negligible R+D especially in the latter years ?
I'm old enough
to remember paying invoices from suppliers by the end of each month --- and getting 2.5% settlement discount for doing that.
This doesn't bode well
Recently, we've had our server delivery dates pushed back further and further, is it because their suppliers have had enough of it and are holding back components?
Paris because she probably knows more about this than I do.
Had to wait a week
For a Dell SERVER part to arrive!
Oh and perhaps small companies need a union dealing with companies like this? Or maybe team up and be the group of companies that supplies Dell/Similar?
Shouty Icon because I wanted to empathise the fact I waited a week for a SERVER part to arrive!
Those free-market fundamentalists who insist
that all government regulation of business is harmful and that markets will always do an adequate job of policing themselves (a position which would make Adam Smith spin in his grave) would be advised to read - and reread - this article carefully....
Thanks for all the comments!
I'd say from all the comments and coverage we've had about Dell and the Hall of Shame that late payment is a hot topic at the moment!
If anyone would like to get in touch about other companies lengthening their payment terms, then please let me know: Jane.Bennett@fpb.org.
Forum of Private Business
(The organiation that named and shamed Dell)
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