Delayed supplier payments continue to plague the supply chain, particularly smaller players. Unfortunately, the global pandemic has only worsened this pain point. According to WSJ, large U.S. companies took around 58 days on average to pay suppliers in the first quarter of 2021. That’s a 5.5 percent increase from 55 days last year.
A common reason for late supplier payments is inefficient internal processes, which can mean invoice dates are forgotten or simply missed. In fact, ACAPP survey revealed 38% were faced were with handling paper invoices and 28% manually process the information. With automated tools being available, there is no excuse not to pay suppliers on time and we reveal how it comes with its benefits.
Impact of late supplier payments
With rising business costs and economic uncertainty high on businesses’ minds it can be tempting to delay a supplier payment in order to preserve your own cash flow but that can come at a cost. Below are a few consequences that can arise:
- Damage to your business’ reputation
- Unclear picture of your company finances
- Strain on your relationship with suppliers
- Less favorable terms and pricing in future deals
- Gives the impression that you are in financial difficulties
- Restrict the growth of both businesses
- Stress on your team
- Charges for interest or late payment charges
Here are 5 reasons to pay your suppliers on time:
- Build a trustworthy partnership
Payment practices can indicate how strong or weak your relationship is with your suppliers. Paying on time, or even sooner than expected, builds trust with your suppliers and increases suppliers’ confidence in you as a business partner.
Building a reputation for making supplier payments on time, makes you an attractive company to do business with. It is also likely to place you higher on the list in the event that an essential product, component or service is suddenly in short supply. In the future, from a position of strength, a prompt payer could be able to negotiate a better deal and it could lead to more business in the long run.
- Eliminate disputes
If your late payment has resulted in financial hardship for your supplier or annoyed them, they are less likely to accept your next order and it could end in a dispute which could not only harm your inventory but also your relationship. If you value their products or services, you should endeavour to make all supplier payments within the terms so that you protect that relationship.
If the situation does arise where you’re experiencing cash flow difficulties and you feel like you might need to make a payment late, communication is key. If you talk to the supplier, and you’ve been a reliable payer in the past, they may value your honesty and offer you a payment extension. This honest dialogue is key to preserving relationships and protecting both businesses from further disputes.
- Negotiate more favourable deals
If you have developed a fair and honest relationship with your suppliers by paying them on time, there could be an opportunity for your procurement team to negotiate a better deal than the one you had previously. This could not only benefit your bottom line but also the quality of product/service you receive. This could also be an opportunity to take advantage of a new deal mechanism. For example, we have come across over 300 different types of deals and we’ve mapped all of those options into our rebate management software.
- Minimize supply chain disruption
When supplier payments are missed or delayed, it can cause disruptions to cash flow and interrupt the flow of materials throughout the supply chain. If a supplier is not paid instantly, it needs to find cash from somewhere in order to meet its costs and they must ensure that products aren’t going out faster than money coming in.
In times of disruption, knowing that you have businesses in your supply chain that are stable and secure can reduce your worries around late supplier payments and being left without critical supplies. Unblocking this late payment bottleneck will also help with planning ahead and keep cashflow moving across the supply chain.
- Avoid employee burnout
Low employee morale and high stress levels are two significant disadvantages of delaying supplier payments. When the business is at fault and payments are late, your employees must undertake ‘damage control’. When angry suppliers call your business looking for their payment it will often be your employees who field the call and must deal with it.
Furthermore, bottlenecks caused by late supplier payments can seriously hamper a business’s finance department. An overburdened team can have knock-on effects that lead to further late payments. This stressful way of working puts finance under pressure and can lead to low-quality output and — eventually — employee burnout.
With Enable, collaboration around supplier payments is simplified
Some businesses work with hundreds, and even thousands, of suppliers, meaning it can be challenging to not only keep track of all your deals and invoices but also collaborate effectively. Not to mention the clunky supplier payments processes mean that businesses of all sizes are losing out on time and money.
With Enable, information contained around the deal is translated into digital data in real time which can be uploaded into any ERP or accounting system and all your contracts are in one centralized place so you can keep track of payment deadlines. With paperwork streamlined and accurate financial data at your fingertips, you will always have a clear picture of your deals and finance will be able to make supplier payments on time.