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Work Better with your Suppliers - Prompt Payment

Trading for Good Guide - The Importance of Prompt Payment


 

Good businesses don't just focus on customers. They also understand the importance of their conduct and activity within the wider supply chain.

Everyone needs to strike a good deal from a supplier in order to remain competitive, but the balance shouldn't tip so far in your favour that it damages the health of your overall supply chain.

There may be financial and ethical arguments at work here - but they need not necessarily interfere with the nature of your supplier relationships.

You can maintain the integrity of the supply chain with a range of different innovative solutions that are mutually helpful to everyone.

For example, our sponsor, Visa Europe, offers consumer and business payment solutions that ensure suppliers are paid within four days but buyers have up to 56 days of credit before they need to settle a bill.

What does prompt payment mean for you?

Prompt payment is the lifeblood of good commercial relationships and keeps businesses in business. All businesses know the difficulties of late payment. If you think you are being paid on one date and your customer has a different date in mind, you could be in trouble. Your own costs and bills still need paying but there may not be sufficient cash in the bank to pay them. At worst, it could lead to business failure. At best, it could mean dipping into your reserves or additional interest on your company overdraft.

What help can you get?

There are several prompt payment procedures you can use to protect your business. 

  • Complete credit checks on new customers / suppliers (and repeat on a regular basis as their situation may have changed).
  • Confirm the agreed payment terms in writing and include the following: “We will exercise our statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation if we are not paid according to our agreed credit terms.” Include this any invoices.
  • Make clear to your customer / supplier and put in writing the course of action you will take if payment is not received on time.
  • Consider offering a discount to customers / suppliers if they pay in advance
  • Always have the payment deadline clearly labelled on any invoices you issue.
  • Look at banking solutions to help ease cash flow difficulties. For example, you could accept payment via a Corporate Card and receive payment in 4 days whereas your customer has up to 44 days before their bill needs paying.

What do you need to do?

Familiarise yourself with the prompt payment code. Take a look at which large businesses have signed the pledge to pay SME on time.

Links

Prompt payment code 

Late payment advice

Visa - Small business solutions

Kevin Barber
About the Author

Kevin Barber

Trading for Good East of England. Helping small businesses strengthen their reputation and grow by showcasing the good work that they do in their communities.

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