Groupon’s Terms Not Endearing

Groupon may be too greedy for its own good.

As merchants grow more sophisticated and as more serious competitors like Google enter the daily-deal coupon market, it’s questionable whether Groupon can sustain its great payment terms. That’s a big issue for investors: Those terms are the key driver of the company’s strong cash generation.

Each time Groupon sells a voucher to users, it collects cash up front. Merchants’ share of the proceeds, which averages about 60 percent world-wide, is remitted later — sometimes much later. In North America, merchants get paid in installments over 60 days. Internationally, it typically takes 70 days.

Collecting payments faster than it cuts checks generated more than $120 million in cash in the first quarter for Groupon, its filings with the Securities and Exchange Commission show. Yet Groupon’s net cash from operations was only $18 million.

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