Tuesday, October 6, 2015

Your money? Yeah, we'll get around to it.

There are a number of people who hate Walmart, and who really want it to fail. In their minds, the demise of Walmart will result in an environment in which kinder, gentler companies will treat employees and customers with respect.

Guess what? Walmart WILL fail - every company fails at some point or another. However, Walmart will fail because a newer company will emerge that makes more money than Walmart does. How? By being even more ruthless.

By definition, the road to success for a company is to maximize profits. In addition to cutting costs - for example, paying low wages and benefits - you can maximize profits by optimizing your cash flow. When you're owed money, get that cash as quickly as possible. When you owe money, hold on to that cash as long as possible.

We all know that large companies such as Walmart have significant purchasing power over their suppliers, and in some cases the suppliers have no choice but to agree. As Bloomberg recently noted, Walmart can take over 30 days to pay its suppliers. And they just have to grin and bear it.

But it could be worse for the suppliers. They could be suppliers for Amazon, who takes over two to three times as long to pay its suppliers. Since 2011, it's taken Amazon over 90 days to pay its suppliers.

Of course, this could lead to trouble for companies in the long run.

Years ago, I knew someone who was an employee at a company (while the company no longer exists, I will not name it). The employee happened to be a musician, and when the local company office hosted a special event, he rounded up a group of musicians to play for the event. The employee paid the musicians, billed his employer...and waited. And waited. After waiting a very long time to get paid (after paying off HIS suppliers), the employee vowed never to play an event for his company again.

Of course, the company didn't care. It just found other musicians to stiff.

And if someone doesn't want to wait three months to get paid by Amazon, Amazon will just find someone else.

And people will long for the good old days, when companies like Walmart ruled the world.
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