Aug/Sept 2009 – Why Should You Pay Your Invoices on Time?

Why Should You Pay Your Invoices on Time?

In addition to being unethical, the practice of deliberately paying suppliers later than the agreed upon terms is wrong for sound economic reasons:

Your reputation is harmed, thereby weakening your organization
Your supply sources are damaged along with your relationships with suppliers
Late payment weakens the overall economy as it constricts growth
Late payment is often viewed as an indication that the buyer is having financial difficulties. Often when such an impression is created suppliers will reduce their terms. Effectively managing your purchasing relationships is critically important to your profit margins. Commitment to prompt payment is a powerful aide to better buying and will certainly produce, closer more cooperative partnerships between your organization and its suppliers.

Large corporations in particular enjoy considerable purchasing power, although along with such power comes greater responsibility. The cash flow in our economy begins with large organizations and should cascade, not trickle-down to their chain of suppliers.

Paying on agreed terms injects more money into Canadian industry; existing suppliers are kept healthy; new firms are encouraged to compete in the existing supply arena; buyers benefit from a wider range of supply sources and the Canadian economy becomes more competitive in the world market.

You will gain in reputation and buying power when you commit to prompt payment:

Suppliers will be keen to work with you
Costs of late payment charges and fees will be avoided
Firefighting and strained relationships will be reduced Any supplier incentives or discounts granted for your reliability can be passed down to your customers, improving your terms to your customers, and allowing you to gain additional competitive advantage in your marketplace. Your customers with concern for efficiency and responsibility in business practices will reward your commitment over time.

Action Plan

Have a management policy for prompt disbursement of accounts payable
Agree to payment terms at the start of all contracts
Monitor your accounts payable system regularly to ensure timely payment
Have a system in place for resolving disputes quickly
Foster good relationships with your suppliers by informing them of your payment procedures and accounts payable contact person
Promote healthy cash-flow in both directions with efficient collection of your own receivables …Some food for thought:

1. One in four business failures are a direct result of unhealthy cash flow
2. 90% of business owners say they would pay suppliers on time if their customers paid them on time
3. Over 40% of SME’s (small & medium sized enterprises) would stop doing business with a customer that paid them late.
4. Only one-third of organizations pay their bills within 30 days of being invoiced.