The White House announced on Friday that Apple, Cocacola, IBM, CVS, FedEx, Honda, and Walgreens, and 19 other large companies have signed on to participate in SupplierPay. The voluntary program is designed to get large companies to pay the small companies in their supply chain more swiftly in order to boost cash flow and increase investment in small businesses.
The Presidential Seal at the White House
SupplierPay is part of the Obama administration's ongoing effort to do what it can to help the U.S. economy in the face of inaction from the partisan-gridlocked House of Representatives. According to The Washington Post, it's similar to an initiative called QuickPay that requires federal departments to hasten their own payment to small business contractors.
For those not steeped in the world of business negotiations, how long it takes to get paid for parts and services is a significant issue. In these matters, large companies have the most power, and they want to pay as slowly as they can. The longer they hold onto their money, the better it is for them, even if its an incremental improvement.
Small companies need the business, however, and to get that business, they've been forced to accept longer and longer terms. In recent years, more agreements have come with payment terms stretching out to 90 days. Imagine doing your job and not getting paid for it until three months have gone by.
These arrangements come with costs, and that's not counting those companies that go under waiting for their payment (which can happen when a supplier over-leverages itself). One of those costs comes in the form of borrowing money. Many small businesses enter into a cycle of short-term borrowing in order to cover their cash flow needs while they wait for the big companies to pay them.
That borrowing costs money and squeezes margins. Reducing the length of time it takes to get paid can lower or eliminate the need for such borrowing, and the White House believes it will result in many of those companies being able to reinvestment in their business.
Apple has long been a leader in using and bending its supply chain to the greatest benefit for itself. This effort was led by now-CEO Tim Cook when he helped transform Apple's Mac inventory management to a just-in-time system that swiftly became the best in the industry in the late 1990s. Part of that effort included extending payment terms out further and further to maximize Apple's own cash flow, which was tight at the time.
Today, however, cash flow is literally the last thing that Apple has to worry about. Apple makes more money than many of the largest corporations put together, and the company's participation in SupplierPay could be meaningful for the companies that help Apple be Apple. Note, however, that SupplierPay is a U.S. initiative, and isn't likely to apply to Apple's massive overseas manufacturing operations.
But, Apple not only makes some things in the U.S., it also supports offices around the country and has a huge fleet of retail stores. There are lots of companies involved in that effort, and SupplierPay could be a big deal for them.
For context, The Washington Post noted that the White House claims that the government-centered QuickPay program has saved small businesses more than a billion dollars in the three years since it was launched.