Paying your suppliers on time builds your reputation, increases your buying power and injects cash into the economy.
In a nutshell
Paying on time ensures that suppliers’ cash flows are healthy, which has positive benefits for those companies, as well as minimising disruption to your supply chain.
In addition, a prompt payment record can attract more preferable buying terms for you with new suppliers and will encourage more companies to compete for your business. Your reputation and your bottom line are improved when you pay on time.
What are the business benefits?
- suppliers will be keen to work with you
- you avoid costly late payment charges or compensation claims
- you save on firefighting and strained relationships
- you approach suppliers and customers on confident terms and build their confidence in you
- you will be able to give reliable service to your customers because your supply chain is working effectively
- closer cooperation with your suppliers can lead to more efficient delivery patterns, or new insight into alternatives for components or supplies
In turn, your suppliers’ positive cash flow means that they can more reliably forecast income, pay their workers and make the necessary statutory payments.
Why is this included in the Scottish Business Pledge?
The Federation of Small Businesses’ (FSB) Voice of small business member survey 2014 found that around a third of businesses affected by late payment highlighted the impact on business profitability, with a similar proportion citing the knock-on effect on paying suppliers.
The survey also identified a number of factors that may apply as a result of late payment, It follows that these negatives may well shift to positive benefits through prompt payment, increased profitability and improved business growth.
In addition, new European legislation introduced in 2013 imposes a financial penalty (interest and recovery costs) if you do not pay for goods and services on time (60 days for business and 30 days for public authorities).
Why is this good for Scotland?
There is a clear link between prompt payment, cash-flow and business performance. By agreeing to pay (undisputed) invoices on time businesses set in motion a ‘supply chain reaction’ which can boost companies competitiveness – a key plank of Scotland’s economic strategy.
This in turn contributes to a sustainable business environment, economic growth and internationalisation.
What should I do now?
Make internal arrangements to pay suppliers within a maximum of 60 days (in line with late payment legislation requirements), and start to work towards adopting 30 days as the norm.
You may also consider signing up to the Prompt Payment Code which encourages and promotes best practice between organisations and their suppliers. Signatories to the Code commit to paying their suppliers within clearly defined terms, and commit also to ensuring there is a proper process for dealing with any issues that may arise.
This means that suppliers can build stronger relationships with their customers, safe in the knowledge that they will be paid, and confident that they are working with a business that values the service they deliver.
Suppliers in the construction sector please note the applicability of Scottish Government’s policy and guidance on Project Bank Accounts.
What help is available if I can’t make the commitment right now?
Visit the Prompt Payment Code website for more information on how you can sign up.