In a move that is bound to affect mining contractors all over the world, Rio Tinto announced that it intends changing its supplier and contractor terms of payment. The present 45-days payment term is set to increase to 90 days.
The company justified this move by saying that making the payment terms 90 days would help boost its balance sheet prior to the departure of Sam Walsh, its CEO, in July 2016.
The move by the multinational metal and mining corporation will affect thousands of suppliers and mining contractors across the globe. They are upset that this move could result in numerous problems, especially when the mining and oil industry is under tremendous price pressure.
This is the second change in the terms of payment that Rio Tinto is bringing in the last nine months. Previously, the company changed the payment terms from 30 days to 45 days which again was greeted with a lot of trepidation. With the latest change, it is expected that some payments will go to 120 days since Rio Tinto pays invoices at the end of the month of receipt of invoices.
However, a spokesperson for the company said that the change in the terms would help free up money and minimise working capital which, in turn, would allow the company to retain jobs, suppliers and contractors in an environment where commodities are facing a tough time.
When Rio brought in its last change in terms of payment, even BHP followed suit, and increased it from 30 days to 60 days. This move too affected mining contractors working with BHP.
There is no doubt that the global commodity market has been affected adversely in the last few years and this is making many companies, big and small, nervous. This could be the reason giants like Rio Tinto and BHP are keeping their balance books fluid by extending their terms of payment to suppliers and contractors.