The Basics
What is GMI’s standard payment-term policy?
NT90
What is SCF?
Agreement in which the buyer (GMI) partners with financial institutions to pay suppliers on the GMI’s behalf.
Who decides if SCF will be used?
The supplier! The supplier can receive payment potentially as early as about Net 10 or as late as the full payment term.
A supplier below Net 90 does not need an Implementation Form if it fits a pre-approved exception category.
False! We have a list of Pre-Approved Exception categories that can be selected on the Implementation Form to expedite the submission process.
HOWEVER, this does NOT exempt you from needing to submit an Implementation Form to obtain an Approved Exception documentation.
Scenario:
A supplier quotes GMI $500,000 at Net 90. After GMI asks for Net 120, the supplier adds a 0.5% surcharge, or $2,500, to the price.
Question:
Should GMI automatically accept the additional $2,500 because of the longer payment terms?
No! Longer payment terms should not automatically mean a higher price. First, negotiate for no cost.
Challenge the surcharge rather than automatically accepting it. If the supplier cannot agree to no-cost terms, connect with the team to evaluate whether any adjustment is reasonable.
We negotiated as much as we could! A supplier cannot meet Net 90. Where do you find the OPL and how do you submit the exception?
Find the policy, OPL and implementation form on Go/PaymentTerms. Submit the exception through the Payment Terms Implementation Form in ServiceNow.
What is the Implementation Form used for? (2)
To update payment terms in SAP ANDDDD receive credit for WCI.
There are four aspects to how General Mills views Working Capital. Those four aspects are...
Accounts Receivable, Inventory, Capital, Accounts Payable
For Net 90 to Net 120, the MRA should cover only the cost of those extra 30 days.
True! It should not cover the supplier’s separate choice to use SCF for early payment.
What is Working Capital and How is it calculated ?
Represents the available capital that GMI uses to finance its day-to-day operations OR The cash available for GMI’s day-to-day operations.
Working Capital = Current Assets – Current Liabilities
What should be utitlized as an additional offering when negotiating longer payment terms with a supplier?
SCF
What is a MRA?
An MRA is a potential price adjustment a supplier may request to cover the financing cost of accepting longer payment terms.
Think of it as an extra amount added to the supplier’s price because GMI is asking the supplier to wait longer for payment.
A supplier’s use of SCF increases GMI’s WCI because GMI pays the supplier earlier.
False. GMI pays on the agreed due date. The SCF provider pays the supplier early if the supplier chooses that option. GMI still pays on the original due date, SCF improves the supplier’s cash timing without changing GMI’s payment date.
Scenario:
A supplier submits a $100k invoice to GMI. GMI approves it under Net 90 terms. The supplier logs into Taulia and chooses to receive payment on Day 10.
Question:
Who pays the supplier on Day 10, and who does GMI pay on Day 90?
The SCF provider pays the supplier on Day 10. On Day 90, GMI pays the SCF provider, not the supplier directly.
The payment process to GMI does not change. GMI still receives and approves the invoice as usual. SCF simply creates a middle step that allows the supplier to receive cash earlier while GMI keeps its original Net 90 payment date.
What does SCF & MRA stand for?
Supply Chain Financing & Market Rate Adjustment
Who's required to approved payment terms <90 days? How many approvers are needed?
2 approvers are required always.
Check our Payment Terms policy to identify what authority level is needed to approve your request.
1. Business/Sourcing Approver – The budget owner or sourcing team
2. Finance Approver – The finance contact that supports your business
How is Working Capital Improvement Calculated?
WCI$ = [(NEW TEMRS- OLD TERMS) /360] * ANNUAL SPEND
Increasing terms with a supplier frees up cash on our balance sheet, and we use the above formula to calculate the annualized impact.
Moving a supplier from Net 60 to Net 90 improves DPO because GMI pays the same invoice later, not because GMI receives more money.
True! GMI does not collect more cash or pay less. The benefit comes from delaying the cash outflow to the supplier.
Why does WCI matter to GMI?
It helps fund growth initiatives, support shareholder value/stock prices, helps maintain debt ratios, reduce pressure on EBITDA, and keeps GMI competitive with our peers.
In the case that the terms for a supplier change from NT30 to NT90 it allows GMI to hold onto cash longer. This is portrayed on the ______ under AP and impacts the ______.
In the case that the terms for a supplier change from NT60 to NT90 it allows GMI to hold onto cash longer. This is portrayed on the balance sheet under AP and impacts the DPO
What does DPO stand for, and why is improving it important to GMI?
Days Payable Outstanding (DPO) It measures how long GMI takes to pay suppliers on average.
Explanation: A higher DPO means GMI holds its cash longer before paying suppliers. This can provide more cash to fund growth and help GMI remain competitive with its peer companies.
Extending payment terms from Net 30 to Net 90 creates permanent savings because GMI pays suppliers less.
False! GMI still owes the same supplier the same amount agreed to. The benefit is a timing advantage, not a reduction in the total amount owed.
Scenario:
Question: The MRA would add $___ to the price to cover the extra 30 days. The total price would be $500,500
0.1% × $500,000 = $500.
The MRA would add $500 to the price to cover the extra 30 days. The total price would be $500,500.