As well as being unethical, the practice of deliberately paying later than the agreed terms is wrong for sound economic reasons:
- It weakens your organisation because it harms your reputation;
- It damages your supply sources and strains your relations with suppliers;
- It weakens the economy as a whole because it constricts growth;
- Late payment is often taken as an indication that the buyer is in difficulties. If you create this impression with your suppliers you may find that their terms worsen.
Late payment can also be symptomatic of poor relationships between you and your suppliers.
The way you manage your purchasing/sales relationship is important to your profit margins. A commitment by you to prompt payment can be a powerful aid to better buying; it will certainly produce closer, more co-operative partnerships between your firm and your suppliers.
Large corporations in particular enjoy considerable purchasing power. That power carries responsibility. The flow of cash in the economy begins with large organisations and should cascade, not trickle, down the chain of suppliers.
Paying on agreed terms injects more money into UK industry; existing suppliers are kept healthy; new firms are encouraged to compete in the supply arena; buyers benefit from a wider range of supply sources and the UK economy becomes more competitive in the world market.
Better payment helps build a better business
Business and economic benefits of paying on time
You can gain in reputation and buying power when you commit to prompt payment
- Suppliers will be keen to work with you.
- You avoid costly late payment charges or compensation claims.
- You save on firefighting and strained relationships.
- You approach suppliers and customers on confident terms and build their confidence in you.
Extra benefit to your company
Your suppliers' incentive for reliability will enable you to give reliable service to customers and help you to improve your terms.
Closer cooperation with your suppliers can lead to wider benefits like suggestions for more efficient delivery patterns, or new insight into alternatives for components or supplies.
Customers with concern for efficiency and responsibility in business practice will reward your commitment.
Helping the UK economy
By working together to change a culture of late payment, businesses that pay promptly are keeping existing suppliers healthy, encouraging new suppliers and helping to make the UK economy more competitive in the world market.
Some food for thought:
One in four business failures are a direct result of interruptions to cashflow
90% of business owners say that they would pay their suppliers on time if their customers paid them on time
Over 40% of small to medium sized enterprises would stop doing business with a customer that paid them late
Only one third of PLCs pay their bills within 30 days and over four years there has been no improvement in average payment times of plcs
How to get started in a small way
Have a top management policy on prompt payment of bills. Ensure that all staff are aware of it, especially but not only those in finance and purchasing.
Agree terms of payment at the start of all contracts.
Monitor your payment system regularly for timely payment of invoices
Have a good system for clearing disputes quickly.
Foster good relationships with suppliers by informing them of your payment procedures and who is responsible.
Promote healthy cash flow in both directions with efficient collection for your own sales.