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art-cash-flowBig multinational companies are extending payment terms to their suppliers, as is evidenced by an article in the Wall Street Journal, “Firms Pinch Payments to Suppliers”. Procter & Gamble is one of those companies and is looking to extend their terms from 45 to 75 days. Not so amusing, is that the article offers that they are late to the game, because other large companies are offering 60-100 day terms.

What this article depicts, is that large companies can free up their cash flow and financing costs by extending terms at the expense of their suppliers. This is an unfortunate trend, and one would think that a company like P&G that made over 13 billion dollars in 2012 would not find it necessary to squeeze their valued suppliers.

In effect, the concept of a trade payable is that it is an unsecured transaction and essentially works off a handshake agreement that the customer will provide payment to the supplier in a timely fashion. Unfortunately, big businesses have the ability to disregard this code of conduct and extend terms.

For P&G, their solution is to provide their supplier a means to get paid quicker by having their invoices discounted by a bank and be paid within 15 days. It is estimated the implementation of this plan will take up to 3 years. What is curious, is how are the suppliers suppose to address these extended terms in the mean time? Another concern will be if all suppliers, big and small alike, will qualify for invoice discounting? While these concerns are relevant, probably the biggest concern for a small business is still trying to bridge the 15-day payment gap. As this article depicts, cash flow is king to large companies, so it must also be very important to small businesses as well. Unfortunately, the small business just does not have the same luxury to extend payment terms and so another solution must be found.

Riviera Finance is a company that is not so unfamiliar with invoice discounting and has been doing so since 1969. The terminology is known as factoring, but unlike the banks getting involved strictly to earn a fee by only discounting the invoice Riviera Finance provides complete accounts receivable management. Riviera Finance will not only provide cash on the invoice within 24 hours, but also manage that account from start to finish, and assume the credit risk. The program is all encompassing and includes invoice mailing, collection management, credit management, cash application, reporting, and a credit guarantee. These value-added services provided by Riviera Finance can free up the limited human resources at a small business. This in turn will allow the small business to direct their attention to the growth components of their company such as sales, service, and production.

In the end, there are options for the small business to manage their trade receivables.

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