Why You Should Pay Your Suppliers On Time

Your suppliers are an absolutely vital part of your business and it is impossible to operate without them. From manufacturers of your raw materials, packaging companies or even the supplier of your electricity or data. Paying them on time helps to ensure that your working relationship stays strong and effective and you can rely on them when you need them to go above and beyond.

Over the years I have seen a number of business owners who felt that they needed to drag out the payment of suppliers for as long as they could get away with in order to keep the cash in their own business but this is very much a false economy. A number of issues that can occur if you continually pay suppliers late are:

  • Word can get out. People talk and there is a real reputational risk to your business if word gets out that you are a consistent late payer
  • The relationship with the supplier can become strained and make it more difficult for you to get the service you would expect
  • Pricing and payment terms can be less favourable than you would normally expect as the supplier tries to ensure that they are not left out of pocket by your continued late payments
  • Interest and charges can be added to your account
  • Further to reputational risk, the assumption can be made that you are paying late due to the business being in financial difficulty. This will make other suppliers wary of working with you

A good relationship with your suppliers will also make them more amenable to working with you when you do have genuine short-term cash flow issues or when you urgently require additional supplies to fulfil a large order at short notice, for example. Who do you think the supplier is going to support first? You, or the customer who pays on time and is a solid business partner? Some further points to consider to pay suppliers on time:

  • The supplier will see you as a business partner and not just a customer
  • They will be more willing to provide discounts to good customers which will make you more profitable
  • It signals to your industry that you are on a solid financial footing and are a business they would want to work with

In order to implement best practice when paying suppliers some additional points to follow:

  • Ensure you agree payment terms up front and in writing
  • Effectively monitor your cash flow forecast to ensure that you can meet your liabilities
  • Contact the supplier with any queries in good time
  • Develop good working relationships with your suppliers, especially with their Accounts Receivable team