No matter what type of business you’re in, it’s important to know how timely payments can benefit your business relationships. Even for companies operating on an extended payment cycle, establishing policies and procedures around receiving payments on time (or early) can be the difference between having a rock-solid partnership and a slightly frustrating one.
This article will give you insights on how early payments benefit your business and your working relationships.
What happens when you don’t pay on time?
When people talk about ways to improve their business, they usually think about sales and marketing. But there’s another way to enhance your business relationships: timely payments.
According to Atradius, more than 39% of invoices are paid late in the United States. Paying late can be a costly mistake that damages your reputation and jeopardizes your ability to do business with others.
For example, suppose a supplier doesn’t receive the payment for products or services on time. In that case, they might refuse to deliver their next shipment or to accept new orders prior to payment. Keep in mind that if this is an important and differentiated supplier this could disrupt your supply chain. On-time payments are important for them, so they can replenish inventory and pay their suppliers and employees.
Your supplier might also feel less inclined to go the extra mile for unreliable or untrustworthy buyers. This happens especially if it takes several phone calls or emails before they finally pay.
In addition to harming relationships, late payments can have a negative impact on your business. This can worsen if you’re dealing with clients who have strict payment terms or if you’re dealing with vendors who charge late fees. If you don’t pay on time and incur late fees from your vendors, it could put your company in financial uncertainty.
Relationships with Business Partners
We all understand the importance of good relationships with customers. But how about our relationships with business partners?
The importance of timely payments
Every company has a different dynamic when it comes to partnerships. Consider that the way you and your partners collaborate has an impact for your business and for your customers. The type of partnership you have will affect how this relationship develops and how it can change over time.
When it comes to paying your suppliers, you need to be timely, accurate, and clear. Payment terms are an essential part of any business relationship. They define how long you have to pay for goods or services, what happens if you don’t make a payment on time, and how much interest you’ll pay if your invoice is overdue.
Here are some tips for utilizing payment terms to strengthen partnerships:
1. Have clear terms agreed upong at the start
Before starting any new business relationship, it’s essential to agree on the payment terms upfront. Make sure to include information detailing when invoices should be sent out and when payments should be made.
According to CFO.com, “27% of financial executives stated that customers didn’t pay on time because they either didn’t have the money or were unable to contact the customer to resolve the issue.”
2. Improve visibility and communication
Like any other relationship, a partnership is about communication. While having a good relationship with your customers might be enough for them to keep buying from you, if you don’t nurture the other relationships in your business, it could create problems for your company, especially in difficult markets.
“61% of late payments are due to compliance or administrative problems such as incorrect invoices or receiving the invoice too late to process payments on established credit terms.” – Credit Research Foundation
3. Automate your invoicing process
Eliminate manual processes and PDFs that end up in clients’ spam folders. Invoice systems work best when they’re well organized from the start. You should always have a clearly defined filing system for your invoices—and those who receive invoices should know where to find your system, so they pay immediately. Bancoli’s bulletproof invoicing platform helps you allocate your client’s invoices with a single click of a button, avoiding payment delays and late fees.
Why are early payments a great decision -even better than timely payments-?
Paying early shows that you appreciate the work your supplier did for you. It gives them more control over their cash flow, allowing them to plan better and take advantage of other opportunities.
Here are some of the benefits you’ll receive:
- You’ll build a better relationship. Your supplier will be more likely to give you better prices, terms, discounts, and other benefits if they know that you are a good customer who pays promptly (or early).
- You’ll be rewarded for paying early. With Bancoli, you can generate attractive returns by simply paying invoices, even if your supplier didn’t offer an early payment discount. Every invoice you pay on time or early is eligible for earning yield.
- You’ll have less work keeping track of bills and payments when you’re not late with payments (and you’ll avoid late fees). Some vendors charge late fees when customers don’t pay on time — and those fees can add up quickly! You could end up paying thousands every year just because you did not pay an invoice before it is due!
- Less risk for both parties. If either party runs into financial trouble, it’s easier for both sides if they have already received payment for services rendered (or goods delivered) rather than having an outstanding balance due
- You’ll help your supplier grow and secure their business. If you pay them early, they can use that money as working capital for other ventures or expand their business. They may also be able to buy additional inventory, which means they can sell more products to other customers — and earn more profit in the process, and become an even more stable supplier for you.
Today, with the rise of flexible payment structures and improved technology, it is easier than ever to pay suppliers on time or early. Don’t let unnecessary expenses deter you from an otherwise beneficial working relationship. In doing so, you will continue strengthening your business’ value proposition and separating yourself from the competition.
Bancoli is a fintech-first international invoice, payment, and banking platform that optimizes efficiency across multiple businesses and industries. Learn more on how Bancoli can help you benefit your business relationships through early payments.