If you think paying your suppliers as late as possible is a smart business move, you’re not looking at the big picture.
This blog originally appeared on the Corcentric Website.
Conventional wisdom used to be “instead of worrying about early-payment discounts, hold off paying suppliers as long as possible and use that money to invest in the business.” A recent CFO article, “Delaying Supplier Payments Isn’t Always Smart,” makes it clear that conventional wisdom isn’t always that wise.
Besides going into detail on the dollars and cents savings, the article also discusses supply-chain finance (SCF) as a way for companies to hold on to their money longer without being penalized.
One of the things the article doesn’t speak about is the goodwill between supplier and customer that can be squandered when payments slow down. If a company is very large, its leverage may allow it to get away with late payments with no negative effects; however, mid-size or small businesses may not be so fortunate. Keeping your suppliers happy by paying them early or on time will go a long way towards making a relationship that benefits both parties.
For how early payment benefits companies, by the numbers, read the entire article.