News this week that Tesco is looking to double its payment terms with suppliers to 60 days should certain raise some eyebrows within (and beyond) cash-strapped food service and retail sectors. Yet, hopefully, it will not cultivate a cult of imitators.
While cash is certainly king in today’s economy, this is not the time to withhold payment from your suppliers. If your cash strategy is to delay or extend payment cycles for suppliers, you’re only putting your company at risk for supply disruptions and operational challenges. (And, as the automotive industry has learned, suppliers are like elephants: they never forget. If you delay supplier payments, don’t expect top-notch service.)
In fact, now is the time to create greater efficiency and transparency in your invoice reconciliation and payment processes so you can make informed decisions as to whether to pay suppliers on time or even (gasp!) early to take advantage of early pay discounts and to keep your suppliers in business. Many cash-hungry suppliers will even likely reward you with additional rebates for early payment.
Consider one technology company who secured 60 day payment terms from customers but paid its suppliers net 75 days. When two suppliers went belly up because they didn’t have the cash to fund operations, the company was sent scrambling to find alternative supply.
One of the quickest ways to get cash under control is to automate the invoicing and payment process. This gives you clear visibility into your commitment and payment streams, ensures invoice and payment accuracy and increases rebate and discount capture. Most importantly, this new visibility allows you to make informed payment decisions based on cash needs, early-pay discounts and rebates, and overall supplier viability.
Companies that have automated their invoicing and payment processes report that suppliers typically grant concessions of 0.5% up to 4% for faster payment. And that type of return can mean the difference between achieving your company’s cost savings and profitability goals or becoming another victim of today’s uncertain global economy.
To learn more about how to turn improved cash management into a competitive advantage, attend the upcoming PayStream Advisors’ webinar, Unleashing Cash from AP: Three Simple Finance Tools for the Downturn on November 13th. (Register here) Can’t wait that long? Learn other quick-impact Spend Management and Cash Management techniques for countering the current economic crisis here.
