Welcome to business in the real world. Try consulting for any Fortune 500 company sometime, and see how long they take to pay you after you invoice them. If 90+ days is the norm for paying small consultancies, it's hard for me to feel too sorry for multi-billion-dollar electronics suppliers.

Well, I AM talking about the real world (note my post scriptum). Also, when you talk about small consultancies and Fortune 500 companies: I have worked for a small consultancy and, later, as a freelancer for German top companies (Deutsche Telekom, Deutsche Post, Munich Re - to name a few) and they all have paid, both that consultancy and me, within a month of which the consultancy/I have sent the invoice. USA is, judging from your comment, different... I see that now.

Aside from being (in my opinion) a bad business practice, it's also lying to the shareholders. You see, that $80 Billion figure would be smaller if they'd pay the manufacturers in a reasonable timeframe.

All I can tell you is that in the US, very long delays before invoices are paid out are absolutely the norm.

I didn't jump in because I particularly care how Apple pays vendors, but because many people on HN are considering freelancing and bootstrapping, and they should know: big companies are never going to pay them on time. Keep cash in the bank.

Your comment about Apple's balance sheet is pretty silly.

Why it's silly?

Apple has 90 days of non paid supplies on the books (and $80 billion in the bank - "cash and investments" as stated in the article).

If they'd (OK... IDEALLY) pay all of them at once and continue paying supplies as they get delivered, only then would their balance sheet look realistic.

Or, am I missing something?

Because under GAAP accounts payable (the money Apple owes its suppliers) is debt. Plain and simple.

Yeah this is very common and it's one of the reasons why Apple is so good at managing their cash.

By delaying payments Apple can use the cash for other short-term investment opportunities. In Apple's case, their accounts payable is probably in the billions. As an example: If Apple has a $10 billion accounts payable and instead of paying it right away they waited for 3 months and invested that $10 billion on short-term securities with a 10% return, Apple would earn $1 billion in that 3-month period vs. ZERO if they paid their liabilities right away.

If those numbers are true, why does Apple bother making stuff? Their $80 billion in the bank should, according to your figures, make them $8 billion a quarter? Actual reported profit is $6.6 billion, so they must be losing over a billion on production and sales of stuff each quarter.

There are short-term securities that earn 10% in 3 months? How do I get in on that?

I'll leave the search for 10% 3-month yield to the parent, but note that the math still works for much smaller yields. Rolling e.g. 12-month US treasuries will yield around .1%, which is roughly $40m annually on the hypothetical $10B. More or less risk free and with excellent margins. This is meaningful even to a company as large as Apple.

No doubt this behavior began before the Fed started their zero interest rate policy. Come to think of it, Apple was in business at the end of the Carter Administration when interest rates hit and exceeded 20% (!!!)....

@eli "As an example"

Having worked as a solo freelancer in the UK my experience was that prompt payment is inversely proportional to the size of the company.

The single man startups I worked for would pay their invoices promptly, while multi-nationals seemed to consider "net 30" to mean they shouldn't even consider paying until 30 days after receipt, and seemed to have a policy that they wouldn't pay until hassled.

We pay pretty much instantaneously too. There's a couple reasons why we're "good" at paying and F500s are "bad" at it (although in MBA terms, we're the ones who suck):

* We don't have a payments/procurements department, so "payment" usually means me, Dave, or our finance person just cutting a check.

* We derive no meaningful benefit from withholding payment (pennies of interest, versus hundreds of dollars of lost cycles).

At giant companies, carefully managing payables probably makes an enormous difference. When you say "operations excellence", stuff like how vendors are paid is one of the first things many people think of.

Tell me about it... sometimes I'm lucky to even have a PO (purchase order) number to put on the invoice, 30 days after I've completed the work with large companies.

The payments department won't even look at the invoice if it's missing that.

Rule number #1 in contracting: factor in the interest costs for N days interest in to your price. Your contracts should factor in an exorbitant penalty (based on time-value of money for YOU, not the market place) for post "net N" days (I'm a big fan of 10% + 1% per additional day). Great video on this:

http://vimeo.com/22053820

The shareholders are told exactly what is going on.

Accounting:

1) Buy parts for $1000

debit Parts Inventory $1000 credit Liabilities - Accounts Payable $1000

2) Pay vendor

debit Liabilities - Accounts Payable $1000 credit Cash $1000

At this size, I don't really feel like it's an issue. Manufacturers for Apple will all employ financial analysts whose job is to price the 90-day payment terms into their prices. If you're going to pay me tomorrow, I'll quote you $1 a widget. If you're paying in 90-days it's $1.04 a widget.

Incidentally, I know a wholesaler [1] in London which sells at almost cost price. It makes most of its profits from sitting on the cash it takes for 60 days, before paying it to suppliers.

[1] http://www.dhamecha.com/

This is also one of the tricks Amazon uses to keep pricing low.

My understanding is that this is most of Costco's profit model too: they take merchandise on consignment for say 60 days, sell it all at cost within a week, and then invest the float.

Big German retailer mediamarkt/Saturn does this. So does French Carrefour. 90/120 days I think

I read in the 90s that Microsoft's suppliers appreciated that MS never went the 'net 30' or 'net 90' route like other Fortune 500 corps and just paid as soon as they got the bill.

It's priced into everyone's models. I worked in the ad industry fo a while where our clients (ad agencies) paid 50% up front and then the rest up to six months later. Meanwhile the artists lived hand to mouth and waned to be paid weekly in checks made out to cash. Meanwhile our hardware was all leased on multi- year terms despite becoming obsolete within 18 months.

Without knowing anything else, 90 days sounds like the amount of time sellers extend credit to Apple (30 and 60 days are also common). Usually such terms come with slight discount for early payment. Good cash management practice requires that they pay on the last day they get a discount or wait until the last day to pay.

Weigh that with times that they pay in advance. It's a case by case bases and I'm sure they're not late with payments. If they wait as long as 90 days, I bet it's because that was part of the business agreement they made with the manufacturer.

I would bet that 90 day payment was a one off. You notice NO ONE quoted in the article was willing to have their name used so it might have been a friend of a friend story. The suppliers who talked gave details about turning down a $1 Billion pre-payment!

I disagree for 2 reasons. First, Apple is notorious with NDAs. Second, many large retailers are quite willing to cancel contracts with any supplier that gets uppity enough to complain in public. Walmart is so notorious for cancelling suppliers that most Walmart suppliers will refuse to allow any company representative speak on the record.

Um, no that's not how it goes.

Paying late in manufacturing is all over the place, 30 days is considered acceptable, 60 the absolute limit, but paying 90 days late is just something Apple can get away with because of it's size and "occasional ruthlessness".

It's not paying 90 days 'late'. It's completely standard in manufacturing for payments to be agreed as due 30, 60 or 90 days after delivery. 90 days fairly long, but not particularly unusual.

It's also not unusual for companies to pay later than the agreed dates, but no-one has said Apple's doing that.

Apple's bought parts on short term credit since it was Jobs and Wozniak in the garage. Though back then, it was because they were broke until they sold the Apple I's, and now it's because they're flush enough with cash that the time value of money favors the delay.

If the manufacturers need the money they can sell the Apple debt for a few bp since the company is AAA rated

I never understand why people try to pass judgment on a transaction like this. Their suppliers are real businesses who are capable of modelling their cash flows and deciding whether or not this is profitable. No one ever stops and says, "wait.. it makes business sense to sell to Apple, but this is lame so let's not do it".

I think "no one" is a bit strong there. The article cites one company who walked away from a profitable $1B deal for a dressed up version of "but this is lame"

No, they said something a bit like that in their PR. They walked away because of cold hard decision making, economic forecasts, risk assessment, Apple demanding too high a price for iPhones, etc, nothing fluffy.