Procter & Gamble Co is increasing the time it takes to pay for supplies and offering financing to help mitigate the impact a longer payment cycle could have on small and midsize businesses, the household products maker told suppliers earlier this month.
P&G plans to increase the time it takes to pay suppliers by as much as 30 days, which could free up to $2 billion in cash, the Wall Street Journal reported, citing people familiar with the matter.
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The world's largest household products company is seeking to pay its bills in 75 days from the average of 45 days it takes currently, the paper said.
In a letter dated April 5 on a P&G website for suppliers, the company said that its "working capital program will focus on moving to longer payables with our external business partners."
The letter from Chief Purchasing Officer Richard Hughes said that P&G discovered that its payment cycle was out of line with those of its competitors. Hughes said in the letter that P&G planned to offer supply chain financing through banks.
P&G recently began negotiations with its suppliers about the new payments terms, which are expected to be implemented over three years and could affect hundreds of companies, the Journal reported. To help P&G's suppliers cope with changes, the company is working with banks to offer cash to suppliers after 15 days from delivery for a fee, the Journal said.
"External business partners will have the opportunity to leverage P&G's strong credit rating and receive faster payment via supply chain financing," P&G confirmed on Wednesday.
According to P&G's supplier website, its payment terms policy is "net 75 globally, where legally allowed," for all new suppliers as of March 1. Its largest existing suppliers are set to start to work under the 75 day policy in July, as new or modified agreements are reached. The new policy will be applied to other existing suppliers starting in April 2014, on a rolling basis, according to that site. (http://pgsupplier.com/en/current-suppliers/pg-payment-terms-and-policy.shtml)
(Reporting by Garima Goel in Bangalore and Jessica Wohl in Chicago; Editing by Mark Potter and Andre Grenon)