Managing supplier payment terms, there is the rule….and then there are the exceptions
Managing supplier payment terms, there is the rule….and then there are the exceptions.
This article is written based on the first hand account of a finance director that Woodsford TradeBridge have worked with for many years, but who would prefer to remain anonymous, and looks specifically at the management of supplier payment terms.
This article on managing supplier payment terms was updated in December 2019.
Obsesssive cash managment and the role of the FD in managing supplier payment terms
From the perspective of working as an FD for a well-known multinational (whose cash management borders on the obsessive), our rule was 30 days end of month (for contractors) or 60 days (everyone else).
Period, of course, except for the ‘prickly’ technical specialist who our most important client loved; and the marketing company the CEO just agreed a 20% advance for; and the frantic supplier whose invoice just missed the monthly payment run.
As with any important relationship, with your suppliers there is always some give and take. Managing supplier payment terms is a complicated beast!
On top of this, our shared service finance department charged a ‘fine’ for any unscheduled payment runs. I guess it helped stop some out of run payments, but mostly it just increased the time I spent being badgered by project managers, suppliers and divisional heads who most definitely didn’t have my emotional wellbeing at heart.
In the end I usually just paid the £100 to let the business get back to doing some actual business.
Ensuring efficient payment processes
There is no question that managing supplier payment terms and ensuring efficient payment processes are a critical component of any successful operation.
But if you believe that the “just say no” approach is going to be any more effective here than when your child requested his or her first mobile phone…well let me know how it turns out. My observation is that both involve endless discussions, representations, appeals and ultimately the same outcome.
So rather than setting yourself up as the bad guy on supplier payments, consider how a supplier early payment programme could support your goals. Any supplier wanting an early payment simply joins the programme and can immediately draw payment on approved invoice for a small discount. Woodsford TradeBridge can implement a programme for a couple of suppliers or your whole supplier list, but either way there is no cost to you.
You can enforce your standard terms, minimise your payment runs and get back to doing what you should be doing…..working on expense control monitoring and usage policies for that damn mobile phone!
More client stories related to managing supplier payment
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Matrix Polymers: funding international expansion
Ann Summers: thriving on the modern high street
Osborne: large-scale construction supplier payment management programmes
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