The impact of late payment on suppliers has always been well documented. But, what’s rarely talked about is the impact that not paying on time has on the business which chooses to skip a payment deadline. With rising business costs, late payment and economic uncertainty high on businesses’ minds it can be tempting to delay a supplier payment in order to preserve your own cash flow. But, doing this can have serious consequences for your business. Here we look at 6 of the negative repercussions you should consider when paying late – or not at all.
1. Damage to the supply chain
Delaying a supplier payment might protect your own cash flow but it has a knock-on effect, pushing the cash shortfall down throughout the supply chain instead. When providing a product or service on credit terms a supplier has a cash flow gap that they need to cover, and when a payment is late this puts increased pressure on their ability to meet their own commitments.
2. Jeopardising supplier relationships
Understandably, if your late payment has resulted in financial hardship for your supplier, they are less likely to accept your next order. If you value their products or services you should endeavour to make all payments within terms so that you protect that relationship. If the situation arises where you’re experiencing cash flow difficulties and you feel like you might need to make a payment late, communication is key. If you talk to the supplier, and you’ve been a reliable payer in the past, they may value your honesty and offer you a payment extension.
This honest dialogue is key to preserving relationships and protecting both businesses from more serious cash flow difficulties.
3. Potential PR nightmare
Name and shame campaigns have grown in popularity in recent years. Businesses guilty of tax avoidance and not paying the minimum wage have been publicly outed in an attempt to shame them and other businesses into cleaning up their act. So, it’s not surprising that companies guilty of poor payment practices are also falling victim to such campaigns. And, with social media giving everyone a platform to share their criticisms, it’s easy for angry suppliers to publicly shame your business creating bad press for you to overcome.
4. Negative impact on credit rating
A growing number of businesses are taking a tougher stance on late payment by using the Small Claims Court or registering County Court Judgments against customers that miss payment deadlines. Aside from the financial implications, these are things that will go on your business’s credit report for all to see.
And with an increasing number of businesses now credit checking new customers, your ability to make purchases on credit in the future could become much more difficult.
5. Harder to access funding
When you apply for some forms of funding, your credit score and how big a risk your business is perceived to be are key factors in the lender’s decision.
So, if you have a poor credit rating due to habitually making late payments you could be making it harder for your business to access funding which could be vital to its success. As well as this, a good credit rating could be the key to negotiating better rates. Therefore, making a conscious effort to pay all invoices on time will give you the best chance of obtaining competitive rates.
If you need to improve your cash flow to enable you to make timely payments, it’s always worth exploring the range of funding facilities on the market that specifically assist with improving your business’s cash flow. Talking to a broker can help to identify areas of improvement and the most suitable facilities for your particular needs.
6. Stress to employees
All of the consequences listed above are likely to negatively impact your employees. What’s more, when angry suppliers call your business looking for their payment, more often than not a member of your staff will field the call and have to deal with it. This is not a comfortable position for your employees to be in.
Your staff are your company’s biggest asset, and when they’re feeling the pressure this is likely to have further repercussions throughout your business.
Where possible, communicate with your employees so they are aware of the situation and make sure you have provided adequate training to help them deal with complaints and criticism from suppliers.
Alex Hilton-Baird, Managing Director, Hilton-Baird Collection Services