Saturday, June 14, 2008

Stretching Accounts Payables

"Stretching" Accounts Payables (i.e. paying accounts payables past the due date without remitting the penalty, or paying after the discount period has expired but still taking the discount) is a common way that some firms gain cheap financing. However, a firm can only get away with it if they have an imbalance of power between them and the vendor. Here are a few Dilbert cartoons that illustrate the basic idea almost perfectly:

Unfortunately, unless you're a Wal-Mart (notorious for abusing their vendors), the flyswatter eventually ends up in the vendors' hands. So, "free" isn't always "free".

If a textbook vendor was smart, they'd just use Scott Adams for most of their illustrations.