As a proactive business owner, you may know how critical it is to stay on top of supplier payments. Paying on time can help keep your supplier relationships steady, healthy, and long-lasting.
That said, making timely payments to various vendors at different due dates – and sometimes with separate payment methods – can complicate your accounts payable process. What’s more, that kind of payment chaos could create cash flow issues, which can impact everything from meeting payroll to making capital improvements.
Devising procedures and creative solutions to simplify payment processing can save you time and boost your business’s efficiency, while also strengthening supplier relationships.
Here are five ways small and medium-sized businesses can streamline the way they process payments to suppliers.
1. Automate Supplier Payments
Automation is fast becoming a must-have tool for many companies. According to findings from Accounts Payable and Receivable Trends and the Path to Profitability, a PYMNTS Intelligence and American Express collaboration which surveyed 412 executives in June 2023, 30% of firms are currently improving their accounts payable (AP) and accounts receivable (AR) automation capabilities, and most that aren’t currently expanding their processes plan to within the next year. Part of the impetus? On average, respondents expect a 50% increase in payments made in the next three years – and more invoices to pay means more work for businesses that manually process payments.
Automation, ACH transfers, credit card payments, savvy payment timing, and negotiating better terms are all ways you can streamline payment processes to enhance your business’s financial health.
You can learn how to manage accounts payable effectively by considering to automate processes and reinforce invoice payment schedules for enhanced financial efficiency. When payments are set to automatically go out on time, you can count on suppliers receiving them on time. In turn, you may be able to maintain positive relations and avoid late payment charges.
Other AP automation benefits can include:
- Improved accuracy
- More efficient processes
- An easy-to-track digital paper trail
- Better cash flow
2. Utilize ACH Transfers
Creating and processing paper checks can be costly – and even counter-productive – to maintaining cash flow. The 2022 Association for Financial Professionals (AFP) Payments Cost Benchmarking Survey of 347 treasury professionals, underwritten by Corpay, found the median cost of a check transaction is around $2-4. This makes issuing individual checks more expensive than using bank-to-bank Automated Clearing House (ACH) fund transfers, which cost a mere $0.26-$0.50 per transaction. ACH also minimizes the use of supplies like postage and envelopes.
Checks have become risky business, too: In February 2023, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert on the nationwide rise in check fraud schemes, citing 680,000 cases of possible check fraud in 2022, a leap from 350,000 in 2021.
3. Encourage Suppliers to Accept Credit Card Payments
Small businesses often prefer to pay suppliers with credit cards for a few reasons: it’s an efficient way to track expenses, it gives them a repayment window of at least 21 days, and in some instances allows businesses to rack up rewards for necessary business purchases.
Other benefits to using a credit card to issue and receive payments are similar to that of ACH payments: check processing costs are minimized, electronic payments are overall more secure than checks, and payments can be automated and sent instantly.
On the other hand, some suppliers may not be eager to take on the additional payment processing fees associated with accepting credit card payments, or they may decide to pass those costs onto customers. Consider taking some time to explain the potential upsides of this method, such as faster payments. If you have a positive relationship and history of making on-time payments, you may have a better chance of making your case.
4. Time Payments Appropriately
Managing payment timing, regardless of the method – credit card, ACH, or check – is crucial for maintaining healthy cash flow. The key is to align your payment schedule with the ebb and flow of your business’s cash reserves.
For example, if you’re paying by credit card, timing your payments to match your card’s billing cycle can maximize your repayment window, giving you more time to bring in cash before making a payment. Timing is equally important with ACH and check payments. Arranging ACH transfers to coincide with predicted cash availability can help prevent potential overdraft fees, but paying on time is important. Otherwise, you can risk late fees and damaging supplier trust. For checks, consider the additional time it takes for mail delivery and processing.
Many businesses may wait as long as they can to pay invoices without going overdue, as this can help maximize cash flow. But it may be wise to take advantage of any potential early payment discounts offered by suppliers. The sooner suppliers are paid, the happier they are – plus, the savings can add up over time.
5. Negotiate Payment Terms
It can help to negotiate payment due dates with suppliers, and doing so can benefit your business’s cash flow. For example, if you tend to receive an influx of cash at the end of the month, ask if suppliers are willing to change your payment due date so it lands at the beginning of the following month. This can help you consistently pay on time and in full, benefitting the supplier as well.
You may also want to discuss the possibility of extending payment terms. This could mean paying invoices over 60, 90, or 120 days rather than 30, for instance. While this approach might be a challenge for some vendors, even extending payment terms by a few days could make a difference to your finances.
Incentivizing can also be a motivator. For instance, you might negotiate extended payment terms in exchange for a commitment to larger order volumes. This way, you benefit from improved cash flow management, while the supplier is guaranteed an increase in business – a win-win situation.
In any case, you can approach negotiations with empathy. While different terms may be better for your business, that won’t always be the same for your suppliers. Fostering a long-term collaborative relationship instead of making one-sided demands can help ensure mutual growth and sustainability that benefits all parties.
Automation, ACH transfers, credit card payments, savvy payment timing, and negotiating better terms are all ways you can streamline payment processes to enhance your business’s financial health. These five strategies can not only bolster cash flow and cut operating costs, but also enhance your supplier relationships.
A version of this article was originally published on September 12, 2019.
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