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Boeing extends payment terms to 120 days

8th July 2016

In an effort to save money, Boeing Co has announced their intention to significantly extend payment terms, cut costs in its supply chain and trim inventory of parts in its factories.

Under the new terms which are scheduled to be rolled out this year, Boeing will take up to 120 days to pay, rather than its current more standard practice of 30 days.

On top of this, Boeing has said that it's going to narrow their factory inventory, relying instead on suppliers to hold parts.

In a statement to Reuters, Boeing confirmed the changes in payment and inventory terms, saying they were necessary to compete when airlines want more capable planes at lower prices.

"To align with industry norms" and remain competitive, "we are in the process of adjusting the payment terms of our large suppliers," spokeswoman Jessica Kowal said in the statement. "In most, if not all cases, our new payment terms are in line with their payment schedules to their own suppliers."

Boeing, which is marking 100 years in business this summer, and its European rival Airbus, earn lower average profit margins on the airliners they engineer and sell than many of the companies that supply components for the planes.

"It's in Boeing's DNA to build the best airplanes," Kent Fisher, vice president of supplier management, said in an interview. "But what we and suppliers have to recognise is that we have to shift that dynamic and focus on reducing the cost to build the airplanes."

Boeing Chief Executive Dennis Muilenburg has told investors he wants to lift Boeing's profit margin to the mid-teens by 2020.

Ad Van der Poel, SVP Financing Services at Basware said;

Boeing’s decision to extend payment terms to 120 days is a typical example of challenging payment practices by an international business. Although this may be triggered by the need of Boeing to manage their working capital, we do need to recognise the impact this type of action has on business development. Many supplying companies will be put at risk by restricted cash flows. Every business needs to take responsibility for themselves and their supply chains, which includes reasonable payment terms. As an alternative, Boeing could address its challenge with the help of a third party or by paying its suppliers early and negotiating discounts.



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