[mathattack]

2 logical options:

1) They aren’t as fiscally sound as you think.

2) They’ve sub optimized and someone is looking very good for stretching payment terms at the expense of the rest of the company. Once they do this it can be hard to walk back as someone centrally has to justify more working capital.

[mwill]

I'm pretty confident on their soundness, they're publicly traded and I check up on clients lodgings when I can, to manage my exposure, they claim to be sitting on $400M in cash and $200M in minerals as of a few months ago.

Option 2 seems plausible, a couple years ago they had a bit of internal politics that we were caught in the middle of, the end result was changing the engineering requirements going forward over purely cosmetic issues, doubling the price of materials. One particular job we did in 2019 for $30k, was $150k in 2022, for the same exact end result for the workers, at the same site, right next to the previous one. The site manager complained, and I said if he got it in writing that they wanted to use the old engineering and disregard the cosmetics, it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering.

[caminante]

This is business process dysfunction, and I bet their AP/AR spend management software was setup wrong.

They can try to spin it as a free loan from you or the ROI gain of running a leaning team, but they're paying 400% more (150k v. 30k) in a current reporting period.

Nothing clever.

You're also sticking around and not getting burned out of repeat business. I like increasing prices to compensate and being upfront.

[yellow_lead]

> it'd be $30k and take 2 days less, and he said they needed it done ASAP, it'd be faster to convince capex to pay the $150k than it would be to start another round of discussions on the engineering.

ouch. This kind of situation could benefit from a cost savings program at that company.

[mikepurvis]

I'm genuinely curious at how a top-down initiative could succeed at rooting out this type of waste. Without empowering the cost savings to speak directly to the vendor, it's hard to imagine them being able to discover that paying a month or two sooner could get them non-FU pricing.

[caminante]

Running an RFP and benchmarking versus competitors would address this.

The problem is empowerment to question the officer who signed the deal and has the vendor relationship.

[mathattack]

Sometimes the cost and energy of the RFP means it’s only done for $500K or higher. An understaffed sourcing team has to focus on the huge deals.

[caminante]

> Sometimes the cost and energy of the RFP means it’s only done for $500K or higher.

Fair point, but that's for a different discussion.

The question was how to "root" it out, not business priorities.

If you're unable to flag and audit an easily identifiable 400% cost increase year over year and +$100k in savings, then let's be honest about the value creation of your AP/Procurement teams.

[twic]

Does "lodgings" mean something like "filings" in Australian English? As in documents lodged with the official somebody or other? Or are you snooping on their houses?

[btown]

No idea about the original post, but property real estate values for customer addresses can be an invaluable signal for confirming potential fraud, in the presence of other yellow flags on a high-end consumer transaction!

[lazyasciiart]

Yes, you lodge tax returns with the ATO.

[HWR_14]

There are a lot of things within (2) that are still reasonable.

For instance, the contracting officer may have to fill out one form for a $500,000 project that they can approve, but approving any kind of different payment terms requires more levels of approval. Sure, it doesn't make sense in this instance, but maybe the rule makes a lot of sense with a far bigger contractor. As the OP said, they are a blip. Making rules that work well for 95% of the time and end up doubling the cost of the 5% is rational.

More options:

3) There are tax advantages to higher costs of services and lower costs of debt servicing that make it advantageous to pay more for a good with better terms.

4) It's literally not worth the time to optimize. They planned for this cost and it's a blip so who cares if it's double the cost. I mean, someone should care, but who actually gets the benefit. Think about it like not cancelling a subscription or not renegotiating every time a contract is up in personal life.

[theptip]

Both of these are reasonable guesses. A slight variant on 2 is that they are actually just a mess; lots of big companies have bad accounts payable teams. It’s typically not something where the CFO is measuring team efficacy based on supplier/vendor satisfaction. You could say this is another way of putting “sun optimized”, but it doesn’t even need someone to be actively trying to stretch terms (though that absolutely happens too).

[Mistletoe]

Is there a #3? Investors are paying for this inefficiency and the money is still coming in/there "for now"?

[chrisdhoover]

Or their accounting department is not great. Most accounting departments I have worked with were not great.