The Federal Reserve raised rates to 4.00% on September 16. On a $12 million contract with 90-day terms, waiting to be paid now costs close to $986,000.
On September 16, the Federal Reserve raised interest rates to 4.00%, and most CPG commercial teams are treating it as an unavoidable cost to absorb:
They read the macroeconomic headline and assume it is just another variable outside of their control. They do not realize it completely changes the math of their next retailer meeting.
Take a standard $12 million annual contract with extended payment terms. When the cost of capital increases, the financial burden of waiting 90 days to get paid skyrockets. That percentage bump can add nearly $986,000 in financing costs over the life of the deal.
Sales leaders are still walking into joint business planning sessions treating payment terms as a throwaway concession. They are yielding on days payable without asking for anything in return. They are letting the retailer hold their cash for free while their own borrowing costs climb.
You have to measure the exact impact of those rate hikes on your supply chain and your cash flow. That cost needs to be factored into your pricing architecture and your promotional strategy before you sit down with a buyer.
A rate hike is not just a macroeconomic event. It is a variable you must build into your negotiation strategy.
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The Maker Group gets commercial teams into the room with one position, one set of numbers, and a walk-away everyone can name.
Book a consultationFirst published by Matt Geddie on LinkedIn.