The health of a business is arguably defined by its working capital, and in today’s climate where cost savings are paramount, it comes as no surprise that most procurement executives are hanging on to available lines of credit for as long as possible.
However, while buyers clearly benefit from keeping hold of funds, what many have struggled to see is that the consequent late or rejected payments can have a detrimental impact on supplier relationships. This can, in turn, have a real impact on the reputation of the business itself.
More often than not, suppliers have to repeatedly chase invoices and payments, which is time-consuming for both parties and a massive source of frustration for suppliers. With valuable business relationships and reputations on the line, surely it’s time for procurement departments to look to address this glaring inefficiency, particularly those with multiple supplier relationships to manage?
Improving cash management and making invoice payment more efficient should be the first step for businesses. This not only helps create stronger payments processes with their suppliers, but it can really help to strengthen those relationships that are ultimately critical to business success.
It’s the simple changes that can make all the difference. For example, automating the payments process makes it simpler for everyone to manage, eliminating the need to chase payments. To ensure things run smoothly, why not manage the financing of high-value items using short-term credit to enable faster payments and get the most out of available funds? This is easily achievable by giving regular suppliers cards with dynamically controlled credit limits. These cards automatically default to zero and increase to the required amount only when a payment is due – enabling buyers to pay suppliers more promptly while increasing payment terms from 30 days for up to an extra month.
As these payments are made by the bank funding the credit account, payment can be made as soon as invoices are approved, and there’s no risk of cheques bouncing or payments being rejected, which is an obvious benefit to suppliers. Even the banks issuing the cards will benefit, because customers only draw on credit as and when they need it – significantly reducing credit liability for the bank. What’s more, they would benefit from increased card spend, as customers will be able to put more high-value transactions on card that would have been previously managed by invoice.
By deferring payment of invoices in this way, buyers can get money to suppliers faster without incurring any additional costs until the card balance needs to be settled, which of course saves a significant amount for both parties. What’s more, procurement executives can enjoy a stronger working capital position, while suppliers benefit from timely payments without the need to follow up on invoices. Put simply, there’s a real opportunity for those procurement executives wanting to make a change to improve the experience for everyone involved in the payments process.
• Robert Kirby is CEO of Spendvision