Is there a simple solution for the old problem of late payments?
- 09 Aug 2016
At the end of 2015 SME’s were owed £45.1bn in late payments, says BACS. This is an age old problem that affects all organisations, but especially small businesses. Late payments are one of the main causes of small business failure, which influences all stakeholders including external customers.
Of course, when a crucial and reliable customer goes out of business, it can have a huge impact on cash flow. However there are many other softer reasons why payments may be delayed rather than never arrive at all.
Some perfectly solvent businesses want to accrue cash in order to invest or speculate on the money market or they may strategically segment their supply chain and keep the most important suppliers happy, whilst making the others wait.
As an eProcurement software company, we have seen that most of the time late payments are less planned and more down to poorly managed invoicing and payment processes. In addition, there are still many archaic and un-user friendly accounts payable systems and inefficient paper-based purchasing processes that cause invoicing errors, disputes and ultimately debts.
How can businesses fix these issues?
We found that when our clients integrate their purchasing and invoicing processes the payment cycle takes less time. The whole procedure is automated, joining the process of ordering goods and services on the buyer side with raising invoices on the supplier side. Getting rid of manual processes allows businesses to benefit from on time payments and minimising the stress of late payments on their supply base.
Should companies pay early?
Many companies have not yet discovered the benefits of early invoice payment. Paying on time is good, but what if your business could get a discount and save money by simply paying early. Dynamic discounting creates great negotiation opportunities allowing the customer to benefit from discounts when they agree to pay the supplier’s invoice early. Typical discounts vary between 2% to 4%, which not only saves the customer money, but improves the cash flow of the supplier, so it’s a win win!
At Medius, we’re fully behind all our customers that are busy improving supplier relationships, creating sustainable and favourable conditions for long term trade that benefits both sides.
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