DEARBORN, Mich. (Dec. 16, 2010)—In February, Ford Motor Co. will start paying suppliers five times a month for parts deliveries instead of the current three times a month—a policy that will help suppliers maintain a steadier cash flow.
Ford purchasing chief Tony Brown outlined his new policy in a memo.
According to the memo, the new payment schedule will take effect in February for parts shipped in late December. Under the new plan, each Ford payment will cover six days' worth of components rather than the current 10 days.
Ford pays suppliers about 45 days after the parts are shipped, said company spokesman Todd Nissen, who confirmed the authenticity of the memo.
Nissen said the more frequent payments also help Ford's cash flow because the auto maker no longer has to set aside as much cash to pay suppliers.
Ford's 45-day payment schedule is close to the industry average, said Neil DeKoker, president of the Original Equipment Suppliers Association.
Ford's new payment plan “is good news for suppliers,” DeKoker said. “Ford has made great progress in its supplier relations, and it's continuing the trend in the right direction.”
General Motors Co. also adopted a more frequent payment schedule this year to help cash-starved suppliers. GM now pays suppliers every week rather than once a month.
“It is certainly an effort to work with suppliers to help their cash flow,” said GM spokesman Dan Flores. “It made sense at the time, and it still makes sense.”