It is important that directors and senior managers work hard to foster a culture of prompt payment within their organisation. The following actions will help create and maintain a speedy payment process:
- Have a management policy on prompt payment of bills. Ensure that the finance and purchasing departments are aware of the policy and are committed to it.
- Agree terms of payment at the outset.
- Monitor your payment system regularly.
- Make sure that invoices are processed in time to meet due dates.
- Agree realistic contract terms with suppliers.
- Have a system in place to deal with disputes quickly. Click here to find out more about dealing with disputes.
- Foster good relationships with suppliers.
- Help your suppliers to understand your payment procedures and, if possible, issue guidance literature.
- Tell suppliers the name of the person responsible for payments.
- If you have a computerised payment system, make sure it can be overridden if necessary to comply with agreed terms.
- Promote healthy cash flow in both directions by having efficient collection procedures in place for your own sales.
Things to avoid that will damage a supplier relationship
Suppliers are important to you. Without them you have no customers. So treat them fairly and they will, in turn, look after you:
DO NOT Reduce your bank borrowing with unauthorised free credit taken from suppliers.
DO NOT Use the financial strength of your organisation to impose abnormally extended terms of payment.
DO NOT Rate suppliers for payment in an order which reflects their bargaining power.
DO NOT Use a minor invoice error as an excuse to delay payment when you have had the benefit of a good product or service.
DO NOT Restrict the financing options of your suppliers by including such restrictive clauses as 'ban on assignment'.
DO NOT Condone a hostile payments relationship which does not match the friendly purchasing one.
ePurchasing and its benefits
Information technology can greatly enhance purchasing and supply management processes through the adoption of ePurchasing systems. ePurchasing has the potential to facilitate communications between purchasers and suppliers. It can reduce errors, speed up payment times, reduce the need to hold stock, improve supplier performance, reduce transaction costs and improve delivery accuracy. If you would like to know more on how it can benefit your organisation, find out more at the Chartered Institute of Purchase and Supply's website at www.cips.org