Companies Continue to Delay Supplier Payments
Macy’s, Mondelez Benefit
Macy’s (M) and Mondelez International (MDLZ) are among the companies continuing to take advantage of pandemic terms when it comes to paying their suppliers. That is freeing up cash they can use to put back into their operations.
In the first quarter, large US companies took 58 days on average to pay suppliers. That is up from 55 days in the first quarter a year ago. For 2020, it took businesses an average of 62 days to pay suppliers, which is a 7.6% increase year-over-year.
Preserving cash flow has become a major goal during the pandemic, particularly for retailers which are having a hard time forecasting demand. Chief Financial Officers’ cash flow management efforts have resulted in cash balances at companies increasing 14% in the first three months of the year.
Cash Flow Increases
For Macy’s, delaying payments to suppliers enabled the retailer to increase the cash on its balance sheet in the first quarter by 18% to $1.8 billion. The department store operator took 163 days to pay its bills in Q1—up from 134 days a year earlier. Macy’s struggled during the pandemic like other retailers and is in the process of shuttering stores and laying off workers.
Meanwhile, consumer foods maker Mondelez said the prolonged pandemic-induced payable process has helped it improve the cash on its balance sheet. In the first quarter it took the company about 130 days to pay its suppliers—up from 122 days in the first quarter of 2020.
Delaying suppliers can backfire in certain circumstances, which is why not all companies have taken this approach. Defense contractor Lockheed Martin (LMT) and semiconductor company Micron Technology (MU) opted to pay suppliers early to ensure their vendors stay afloat. Lockheed paid its suppliers in 12 days in the first quarter, which is down from 21 days a year earlier. Meanwhile Micron cut its days payable outstanding to 37 from 45.
The takeaway is that from global shortages to payment schedules, the COVID-19 pandemic will have long-lasting impacts on supply chain dynamics. In this instance, there is a divergence between companies like Macy’s and Mondelez which are trying to make longer payment cycles the new norm. Others, however, are opting for quicker turnaround times. Investors will be analyzing different strategies as they evaluate CFOs and ultimately the stock performance of individual companies.
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