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Payment Terms: Direct Purchasing vs. Two-Step Distribution

How do payment terms compare when purchasing directly from manufacturers versus through two-step distributors? We recently explored this topic with lumberyard respondents who purchase both direct and through two-step distribution. The results were interesting.

To start, we found three-quarters of lumberyards purchase at least some materials directly from manufacturers as shown in Figure 1, below.

Figure 1

Pie chart: 76% of lumberyards purchase at least some materials direct from manufacturers and 24% do not (n=676).
Share of lumberyards that purchase directly from manufacturers (n=676). Source: Principia Voice of Customer Survey Data. Year not stated on image.

Among lumberyards who purchase direct, more than 60% believe payment terms offered by manufacturers are superior to those they receive from two-step distribution. This was true across all payment terms as outlined in the six evaluated in Figure 2.

Figure 2

Stacked bar chart of lumberyard payment terms (n=517): 65% rate upfront price better when buying direct versus 35% for two-step distributors.
Share of lumberyard dealers reporting better payment terms from direct manufacturers versus two-step distributors across six terms (n=517). Source: Principia Voice of Customer Survey Data. Year not stated on image.

We will continue to monitor this trend going forward, though prior research indicates direct purchasing is on the rise. More attractive payment terms could impact the trend of greater direct purchasing.