The Payables Predicament: Delayed Payments to Suppliers
And so began our investigation into one of the most overlooked—but devastating—signs of financial strain: the payables predicament. Companies often extend payment terms to suppliers, not out of strategy, but desperation. The longer they delay, the louder the warning bells should ring.
“A payable is a promise. Break enough of them, and your reputation defaults before your balance sheet does.”
The Art of Stretching Payables
While extending accounts payable may temporarily boost operating cash flow, it often signals a liquidity issue. Suppliers are, in effect, being used as involuntary lenders. In forensic accounting, we look for whether this is a tactic or a symptom of something sinister.
Case Studies: Global Companies in a Payables Bind
| Company | Region | Payables Growth | Supplier Complaints | Red Flag |
|---|---|---|---|---|
| Carillion | UK | £1.5B in unpaid supplier bills | Over 30 small firms bankrupt | Cash flow masked by working capital stretch |
| Abengoa | Spain | Accounts payable up 42% | Delayed projects, defaulted contractors | Suppliers treated as financing source |
| Evergrande | China | Billions in unpaid contractor dues | Mass project halts | Use of ‘commercial papers’ instead of cash |
Forensic Ratio: Days Payables Outstanding (DPO)
DPO = (Accounts Payable / Cost of Goods Sold) × Number of Days
A sudden jump in DPO without supplier agreements or clear strategy is often a red flag—especially when matched with falling or stagnant revenue.
Visualizing DPO Manipulation
Common Tricks Behind Payables Delays
| Tactic | Surface Appearance | What’s Really Happening |
|---|---|---|
| Commercial Papers to Suppliers | Looks like paid obligations | Actually deferred payments via IOUs |
| Vendor Financing | Partner-funded inventory | Credit risk shifted off-balance sheet |
| Deliberate Term Stretching | Free cash flow improvement | Cash crunch in disguise |
Other Global Red Flag Cases
- IL&FS (India): Delayed infrastructure vendor payments masked by inter-company accounting
- Steinhoff (South Africa): Complex vendor payment structures with deferred settlements
- Sun Edison (USA): Supplier disputes amid liquidity evaporation
Detective’s Note 🕵️
- Watch for growing DPO without clear explanation—especially if cash balances aren’t rising.
- Delayed payments may precede bankruptcy filings.
- Look for “supplier disputes” in earnings calls, footnotes, and trade credit disclosures.
- Supplier networks are the first to sense distress—before investors or regulators do.
“The world is full of obvious things which nobody by any chance ever observes.” – Sherlock Holmes