One way any business can among cash flow is to delay paying creditors. Suppliers often factor the average collection time into their business cost model. A challenge arises when the average collection time extends beyond the anticipated.
Two suppliers I spoke this week mentioned seeing significant increases in average collection time. Each saw it grow by close to 20% in the last year.
One supplier was now at close to sixty days for accounts with small business newsagents. Their response is expected to be an increase in the benefit for ‘early’ settlement, by 30 days.
The other supplier is looking at a price increase to reflect this growing cost of doing business.
Thee challenge is some of these suppliers, especially the smaller ones, are squeezed at both ends – on price and on settlement time.
I’d like to see suppliers give benefits to those who pay on time or early and penalties to those who pay late as it the late payers who impose greater costs on businesses. Those who pay early or on time should not suffer because of the late payers.
I get that small business retailers don’t always have the money to pay on time. However, making that the problem of a supplier is an unreasonable joist on the supplier, which they have to cover somewhere.
Tough as it is, if you think you may not be able to honour the payment terms of a supplier, don’t purchase or make other arrangements so that you can pay on time. To say to a supplier who has supplied that you can’t pay is unfair. You may think you have won when they agree to extended terms. The reality is there is a cost somewhere, to someone. It may not be obvious right away but there will be a cost.
I expect more suppliers will take a tougher stance on payment terms with more benefits flowing to those paying early or on time. This would empower these businesses, enable them to be more competitive in retail. This is competition at play. Smart suppliers will seek out these early / on-time payers as they will be more valuable to them.
If a supplier has higher than average collection days then supplier should ask why. Suppliers that don’t meet the sales pitch, delay or make incomplete deliveries, fail to respond to queries and crucially, are tardy in processing credits….. All inevitably fall to bottom of payment pile. Efficient, responsive and performing suppliers get paid on time.