Should I Delay Payment To Improve My Cash Flow – A Valid Question From All Sizes of Business

Are you feeling the pinch in a changing and unstable economy?  Thinking of delaying payment in order to grease your wheels a little?  STOP.  This is one of the worst things that you can do for your business.  With credit becoming a scarce resource, a commodity that is increasingly difficult for businesses to obtain, it is more important than ever to maintain good relationships with your creditors. A reputation and demonstration of prompt payment within agreed terms is one way to convince new suppliers to work with you, and to keep your current suppliers working with you.  All of this can keep your cash flow healthy and manageable, so that you are in a better position to make long term wins and grow your business.

 

‘90% of business owners say that they would pay their suppliers on time if their customers paid them on time.’ (Better Payment Practice Group 2003)

Why pay your invoices on time?

• Reputation – Deliberately withholding payment is ethically unsound and harms your reputation
• Delivery – Damaging relationships in your supply chain reduces your ability to deliver your products or services to your customers
• Growth – When cash flow halts, it weakens your local economy restricting growth and investment
• Reductions – Late payments can reduce future credit terms from your suppliers, drastically changing your cash flow

On a positive note:

• Save money – You can negotiate better prices when you have a good credit history with your suppliers
• Make money – Great relationships with your suppliers enables you to promise products and services to your customers
• Save money – Reduce the cost of borrowing and minimise late fees and charges
• Make money – You can generate better referrals from suppliers, and testimonials that are crucial for tenders and contracts

 The Better Payment Practice Code

 The Better Payment Practice Code was established in 1998 to help improve the payment culture amongst organisations trading in the UK. The Code is supported by public as well as private sector organisations.  Collectively, the 1400 organisations currently signed up represent about 20% of UK Gross Domestic Product.

The Code is simple:

1. Agree payment terms at the outset of a deal and stick to them
2. Explain your payment procedures to suppliers
3. Pay bills in accordance with any contract agreed with the supplier or as required by law
4. Tell suppliers without delay when an invoice is contested, and settle disputes quickly

First Steps

Many business owners find themselves dealing day to day with accounts payable and accounts receivable.  Now could be the time that you revisit this crucial aspect of your business, and you can start by asking yourself some simple questions:

1. What is your policy on payment of invoices?
2. Do you have a policy for resolving disputes?
3. Have you got a clear understanding of your payment terms for all suppliers?
4. Are you able to, and do you monitor due payments regularly?

 

Once you start to look after your numbers, you will find more power and more value in them.

~ by crispinread on April 5, 2010.