Why is it important to pay suppliers and vendors on time?

Cash flow is necessary for every business, big or small. You can manage and expand your firm more effectively if you have access to operating cash. Most of the suppliers are also in the same position as you when it comes to having difficulty being paid on time. While you may not have considered it that way previously, cash flow is extremely important to the suppliers (which are mostly small companies). That is why so many of them provide early payment incentives and other perks.

In short, if you have the better cash flow you can assist your suppliers to obtain cash flow too. As you unlock a lot of doors of potential for development. Let’s have a look.

Should you pay early?

Usually, suppliers do not provide early payment incentives on their bills. The size of the discount is determined by a variety of factors, such as the industry standard, rival discounts, and the payback history of the customer, amongst other considerations. If you pay a Net 30 invoice within 10-15 days, you’ll get a reduction of 1%-2% off the total. Although it may seem like a minor reduction, it may build up to considerable savings over time – particularly if you engage with numerous vendors/suppliers who give early payment incentives.

In case you do not see such a condition on the invoice, do not forget to ask the suppliers what they’ll do to you when you pay early.   Money rules. So don’t be hesitant to utilize cash flow towards your benefit. Don’t simply pay early. Ask your suppliers/vendors to provide you with a reason to pay them early.

Secret Tip: Be careful to ask your vendor or supplier whether the discount window begins exactly on the invoice date or the day that you receive it, as they could not be the same day. 

There are lots of benefits of paying your suppliers and vendors within time.

  • Save Money & Maximise Profits: This is apparent – you will save some money on inventory costs, which equals cheaper expenditures, bigger margins and quicker growth.
  • Create Credit for Your Company: Check with your vendor to see whether they report payments to the credit agencies. In case they do, then your timely payments will be logged, helping you to develop a strong company credit score. This information may be accessed by potential suppliers, vendors, and even financiers, who will see that your company is reputable.
  • Build Trusting Relation with Suppliers: As a result of this, your suppliers will be more inclined to continue doing business with you in the future. This brings us to our next subheading: they suppliers may even cut you further bargains in the future. Ensure how you can pay the full amount up front if you are seeking to be authorised by a certain provider. As that is guaranteed to open doors. In addition, if your supplier recognises you for making timely payments they are likely to do significant favours if you need last-minute merchandise quickly.
  • Other Deals: If you regularly pay timely and are able to create a good connection with business suppliers, they could be prepared to give extra incentives like shorter production times, rapid and/or free delivery, cheaper unit cost, etc.

Secret Tip: Be sure to secure the discount conditions in writing, no matter what they are in your situation. Written agreements will significantly reduce the risk between you and your business provider.

How Timely Payment is beneficial for Suppliers?

It is unusual for small businesses to pay suppliers always in time as they themselves have short of money sometimes.  This indicates your suppliers could be more open to giving early or timely payment discounts, but don’t be shocked in case there is not an explicit policy yet.

As you’re discussing the conditions with them, make sure to underline the advantages they will receive from being paid early:

  • Smooth Cash Flow: Suppliers endure cash flow gaps, too. Admittedly, they wait almost for a month to be paid on a work. If you can decrease this time lag, you’ll help them enhance their cash flow and cash on hand so they can stay abreast of their operational expenditures while they’re still delivering orders.
  • Less Danger: This may sound simple, but being paid early lessens the possibility of delayed payments. Think about it. If a client sees that they will have time to pay a bill, they could wait until the end to pay, which might very well contribute to a delayed payment. 
  • Customer Retention: Suppliers expect customer retention. You’ll be more inclined to purchase from same suppliers again (maybe even refer them to other vendors) if they provide incentives like early payment reductions.

How Denarii help you pay early?

With Denarii, you can pay your vendors and suppliers using a credit card, even if they do not accept credit cards. You can transfer money directly to their bank account or an E-Wallet through the Denarii platform. Defer payments and hold onto cash longer. Pay with your local bank account immediately or schedule a payment with Denarii. Furthermore, you can connect Denarii with top accounting software (Quickbooks, Zoho, Xero) and have it in 2-way sync to keep your books clean and pay your vendors and suppliers on the go.

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