As business owner, you know how important it is to stay on top of payments to suppliers. As the maxim goes, "you need to spend money to make money." But let's not forget a more granular, golden kernel of wisdom: "You need to pay on time to keep your suppliers happy.”
However, making timely payments at varying times of the month and with different payment methods can be complicated and costly for your accounts payable. Not to mention it could create issues in your cash flow.
Streamlining supplier payments—devising procedures and creative solutions and making use of resources to simplify the payment process—can save you time and bolster your business's efficiencies. It can also help you maintain good and collaborative relationships with your suppliers.
Here are 7 ways small and medium-sized businesses can improve the way they process payments to suppliers:
1. Automate payments
The advantages of automating payments to suppliers are multi-fold. First, you can rest assured your suppliers are receiving their payments on time. In turn, you'll be maintaining positive relations and avoiding late payment charges.
Easy-to-track digital paper trail
2. Batch-process cheques
Creating and processing cheques can be a costly payment method, not to mention that it's counter-productive when it comes to maintaining cash flow. A survey by the HR management software company PaySavvy1 finds that the total cost of issuing a single cheque is US$17 when you factor in secondary costs, such as bank fees, fraud protection and cheque reconciliation services.
Minimized supplies, postage and special equipment
Decreased time and costs associated with processing your cheques in batches
3. Time credit card payments
If you're paying by credit card, time your payments so they're in sync with your cash flow. For instance, if you tend to receive an influx of cash at the end of the month, negotiate payment dates with suppliers so they hit at the beginning of the following month.
Enough cash on hand to pay suppliers
Additional time to bolster your reserves
4. Encourage your suppliers to accept credit card payments
When issuing payments, the benefits of using a credit card to issue and receive payments are clear:
Decreased costs of cheque processing
Minimized discrepancies and errors with cheques
An added billing cycle and grace period means you'll hold on to your money longer
Consistent monthly withdrawals can lead to stronger cash flow and simplified accounting
Card rewards and rebates
As for receiving payments, you can get paid sooner reducing your Days Sales Outstanding (DSO) and, in turn, optimizing cash flow. Plus, by making electronic payments, you automate processes, reduce related costs and save time by nixing cheques and wire transfers.
On the flip side, some suppliers prefer to receive cheques as they might not be up to speed with the technology or have the equipment to accept credit card payments. Take time to explain to your suppliers the benefits of this method, such as expediting payments, saving time and money on their end, driving more sales and boosting customer loyalty.
5. Extend payment terms
Discuss with your suppliers the possibility of extending payment terms. For instance, ask a large volume supplier if you can pay bi-monthly or quarterly. While that might be a challenge for some vendors, even extending payment terms by a few days could make a difference.
Incentivizing can also work here; if you can guarantee a certain amount in sales in exchange for such flexibility, the supplier might find it to their benefit to consider such an arrangement.
Greater control over when you'll make payments
The ability to set up a payment cycle that works best for your business' cash flow cycle
6. Ask for a discount
Conversely, you could ask vendors for a discount if you pay early. For instance, if invoices from a supplier are set at net 30, you may be able to negotiate a 2 percent discount if you pay the invoice within 10 days. A 2 percent discount from a high-volume supplier with whom you have an ongoing relationship could result in significant savings for your business. And, by leveraging an American Express Corporate Card to process payments, you can push out your days payable outstanding (DPO).
7. Benefit from unsecured lending
To hold on to your cash longer, consider American Express' working capital solutions. Your suppliers will be paid within five business days, and you'll have up to 55 days to pay back the credit line depending on when charges are posted, whether your account is in good standing and the closing date of your statement. You'll be able to extend your accounts payable and enjoy improved cash flow and a more stable and predictable working capital.
Streamlining payments to suppliers can be a win-win to simplify the accounting processes of your company, bolster cash flow, improve efficiencies and save in operating costs. In turn, it can contribute to the continued growth and success of your business.