In business, relationships are everything.
An African proverb says “If you want to go fast, go alone. If you want to go far, go together.”
These are thought-provoking words. As a responsible employer, you are concerned about the relationship you have with your employees. You always want to pay them on time.
The consequences of not paying your employees on time can be devastating to a business. Payment to suppliers on time is just as important, sadly it is not considered with the same priority. In 2017, the percentage of overdue B2B invoices was nearly 50%.
In this article, you will learn about 7 ways to ensure early payment to suppliers that will lead to excellent benefits.
Late Payment to Suppliers – The Cost to Your Business
Nobody likes to be paid late.
Some may intentionally pay their suppliers late. Yet, for most businesses, it is not an intentional practice. It is merely the product of inefficient systems and the consequence of receiving late payments.
If you are the business making the late payment, consider that there is always a cost to doing so. Some costs are direct, many are indirect.
For example, late payments can lead to the following:
1. Broken Trust
Supplier and customer relationship is extremely important. Like the African proverb, if you want to go far, then you will need each other. That is the key to long-term success.
You need a stable and reliable supply of product. Failing to pay your supplier puts your supply chain at risk. That leads to broken trust and a lack of support and cooperation when it is needed.
2. Damaged Reputation
Your reputation as a business is one of your most valuable assets. If you break trust and damage your reputation, you risk future business relationships.
If you make late payments to your suppliers, then they may think you are in financial trouble. This will affect how other suppliers may choose to do business with you or not. If you cannot get the right supply of product at the right price, then the lifeblood of your business will wane.
Equally, if you have vendors that fail to pay on time, then you may consider terminating your agreement with them. Here is a form to help you get started.
3. Increased Costs
Depending on your payment terms with suppliers, there may be late payment penalties that ultimately are increasing your costs.
If not late payment charges, your supplier may also be seeking compensation from you for the financial impact of late payments on their business. This could prove to be very costly.
4. Limit Growth
If you do not pay your supplier on time it will negatively impact the overall financial health of that business. That means you may be contributing to restricting the growth of your supplier.
That is bad news and bad business. If your supplier prospers, they will grow and pass on those benefits through better prices and better payment terms.
This is a living demonstration of the African proverb mentioned at the outset. Support your supplier and they will support you. Together, you will prosper.
Payment to Suppliers – Make the Commitment
One way you can demonstrate you are serious about paying your suppliers on time is by signing up to the prompt payment code.
This is administered by the Chartered Institute of Credit Management which is the largest professional institution across Europe for credit management.
The basic premise of this code is to pay suppliers on time. It also includes clear guidance to suppliers so there is no confusion over payment terms. It also promotes good practice in making payments as a financial discipline.
Once you make the commitment to pay early or on time, here are 7 tips that will help you keep that promise and forever improve your business relationships.
1. Electronic Invoicing
Paper wastes time and encourages error. There are many steps required for paper invoicing that waste unnecessary time and introduce opportunities for error.
Move to electronic invoicing and cut out those time-wasting steps. You and your suppliers will be able to exchange documents electronically. If you work to the same standards then your invoice and payment cycle will reduce significantly.
Those standards need to be documented and agreed so that you and your supplier are clear on their payment terms. Other useful legal forms for your business can be found here.
2. Get it Right the First Time
You want to strongly encourage your suppliers to get their invoices right the first time. Invoices that contain errors waste time and resources of everyone.
Motivate your suppliers to get their invoices right the first time by paying correct invoices earlier than the agreed terms.
3. Keep it Simple
Do not employ complex invoice approval steps with your payment process. The more people in the chain, the more complex the decision-making process is, the more time is lost.
It is sensible to delegate levels of financial authority depending on the value of the invoice but try to keep this as simple as possible. If you have to keep escalating invoice approval through several layers based on financial authority you will lose needless time.
4. Move and Approve
This is linked to the use of electronic systems for your invoice approval. There are excellent tools available such as Stampli.
Get essential financial tasks completed while on the move. You do not need to be in the office. Make sure your systems allow you to approve invoices while working remotely from home, or at outside meetings and so forth.
Integration with the internet will allow you to use your tablet or mobile phone.
5. Block the Cracks
This is all about good communication systems. Invoice queries can fall between the cracks and be left behind as someone else thinks another person is dealing with it.
You need a communication system that will allow you to collaborate and deal with queries in real time.
6. Create the Right Channels
It is unrealistic to expect that all invoices will be paid perfectly on time. Some will be late. When that happens, make sure you have already created the right channel to escalate those queries and payments within the financial team.
Even though the payment may be late, you will be doing much by way of damage control. Get your channel right and you will still have a happy supplier.
7. Organize Your Suppliers
The payment terms of your suppliers will be different. Make sure you know what those differences are and use that information to ensure you correctly prioritize how you respond to them.
You may want to organize all your suppliers with high late payment penalties together so they can receive top priority.
Good Business – Good for Everyone
In this article, you have read about the negative consequences late payments have on your suppliers. You have also learned how to improve the speed and efficiency of your financial systems so as to avoid payment to suppliers that are late.
Paying on time is good for you, good for business and good for everyone. At times you may need credit, here is an excellent article to help build good credit.