I retired from personal blogging in July 2008 but you can find me over at blog.xero.com
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We’re operating at a time where the velocity of business has speed up so much that in many cases business conventions are being challenged.
An obvious examples are property leases which are often 6-9 years. In a time when businesses are built and sold in 2-3 years a 6 year lease seems strange. The business may fail (maybe it runs out of cash in year 2) or be wildly successful in year 3 and needs 10 times the space. Predicting company size 6-9 years out is meaningless.
Employment is similar. Job security is fiction and fast moving companies need fast moving staff. Careers are accelerating faster than convention - expertise is more related to experience than time - so you can have a very capable people who are young in years.
Convention is to invoice monthly and pay bills on the 20th. In some industries this is an artificially slow cycle that delays cash receipts and delays investment. There may only be 12 investment cycles in a year. How much more could you do with 52 cycles, or 365 cycles (assuming there was no material increase in workload).
Tax cycles, bank statements, cheque clearing and business convention force periods into a business that may longer be relevant. To break these cycles into realtime or near real time exchanges increases velocity.
If cycles are shorter investment required can be less. I’m sure reducing payment days from 30 to 10 reduces cash requirements at least by half. Working capital is freed up.
Web Services, a technology that allows systems to communicate electronically, give us a chance to increase velocity. But we also need to look at convention and say - why does it need to be this way? I think the time is getting close where technology is not just going to be used for automating traditional processes but will enable business connections that will challenge convention and traditional timings. This should provide opportunities for nimble companies and groups of companies that connect together.
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One of the problems with this concept is that unless everyone or a good chunk of business change the historical way they pay, someone in the food chain ends up being the “bank”.
In saying this, all retail shops get paid instantly but not all pay suppliers instantly. One exceptions I am told is The Warehouse who pays suppliers electronically as soon as goods supplied are scanned into their distribution warehouses.
We pay our staff every two weeks; always have even though we don’t get paid on this cycle.
Rod, I don’t know if you have control over this but typing this into a Letter Box sized field of 4 lines is horribly bad from a usability point of view; worse than texting on a phone!
Comment box size fixed. Thanks for the feedback.
And then as a counter example to the Warehouse, there’s Walmart in the US, which uses trade credit as a source of financing. (cf http://en.wikipedia.org/wiki/Trade_Credit)
I have heard previously (although can’t find the reference) that Walmart will pay invoices within 20 days, but only at a discount of 20% or so on the face value of the invoice — for full payment, suppliers must wait six months.