Believe it or not, right after our discussion on payment terms, a story on this topic hit the press.  Apparently Anheuser Busch InBev is now paying its bills 120 days after receiving an invoice.  Reportedly, Belgian governmental authorities are investigating the practice to determine its legality.

Since Emerson (Anheuser Busch InBev’s main supplier for brewing appliances), has little bargaining power to resist this change, it has publicly issued an edict that it will no longer serve its huge customer’s beers at any Emerson event.

“We suggest you use Coors, Miller, Modelo (Corona, etc.) or Heineken products,” the memo apparently goes on to say.

What Anheuser Busch InBev is doing, essentially, is turning each of its purchases into a 4 month financing contract.

I wonder how they would feel if their beer distributors tried to do the same?

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So color me surprised when I noticed one of my large clients insisting that it would only pay a bill within 45 days.  They also pushed back on the seller’s right to terminate the contract for late payments, requiring the seller to give up to 90 days advance notice before it could do so.  Floating your money for this extended time period gives you some great advantages when you’re the customer.  A customer can use its levitating dollars during the extra time to garner interest or invest the money, money which, in the past, the seller would have had.  Presto!  Like magic, the extra time means extra dollars for the customer.

What happens to the seller?  Think about it: 90 + 45 = 135 days to pay a bill.  Most salespeople will tell you that waiting over 4 months for payment will clobber their cash flow and make it very hard for them to pay their own bills.  The solution?  The seller starts doing the same thing to its vendors.  Now, when people negotiate the payment terms in a contract, they’re left in the rather disingenuous position of begging customers to pay within 30 days, then turning around and asking for much more time to pay when it comes to their own creditors.

Besides being a blatant violation of the golden rule (which we all want to follow, right?), the lack of reciprocity makes for an uncomfortable negotiating relationship and hits you with credibility and loyalty costs when it comes to your business partners.

A great example is playing out right now.  Apple appears to be taking longer and longer to pay developers who create iPhone applications.  Here we have a situation where Apple has tremendous power because it’s the gateway to the iPhone platform.  Apple takes all the money users pay for developer’s apps and then relays the developer’s cut to them (minus Apple’s share), per the Apple contract agreed to by every developer.  According to the copy of the Apple contract here, Section 3.5 requires Apple to pay the developer within 45 days after the end of the month that Apple received the developer’s payment from a user.

So if you buy my WhichDraft App (doesn’t exist yet, but I can dream, can’t I?) on March 1, Apple doesn’t have to relay your payment to me, the developer, until mid-May!  While waiting over 70 days for my money is bad enough, according to this report Apple might be taking even longer.  And since Apple controls access to the platform, the developer is left with a difficult choice: keep waiting while her own bills pile up, or threaten to sue Apple, which could provoke Apple into rejecting her apps entirely, effectively shutting the developer out of the entire platform’s market.

The situation makes me imagine Steve Jobs as the Soup Nazi: “No more millions of iPhone users for you!”  Sure, there are laws against this kind of behavior, but if you’re a small developer, do you really have the time and money to litigate this kind of dispute?  For most people, I think not.

That’s the power of a network access agreement.  However, at some point, the pain could be so great that developers just move to a different platform.

Palm Pre, anyone?

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