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Are You Making Payments Late?

Here's how to keep your vendors happy even when you pay late.

August 7, 2008
by Mary Schaeffer

Given the tight economic environment most organizations now find themselves in, paying your vendors late sometimes becomes a necessity. The trick is to make sure your employees don't make the matter worse by giving the vendors conflicting information or shifting blame for delayed payment.

Change Payment Terms

In today's economy, a growing number of companies are facing cash-flow issues not seen for several years. When your company decides to delay payments for a specified period, say 15 or 30 days, you must also decide whether or not to communicate this decision to your vendors and if so, how the communiqué will be delivered.

The easiest way is to send a letter informing vendors that you have changed your standard payment terms. If you do send the letter, some suppliers may refuse to sell to you on open-account terms. In the long run, this is the easiest way to handle your vendors, but some companies do not take this step.

If your organization decides to communicate to your vendors by sending a letter, make sure everyone on your staff knows about your new terms.

Temporary Delay

If you're concerned that your vendors will not accept your new terms, you must then decide on one of the following courses of action:

  1. Call your vendors and explain that you are experiencing a temporary cash-flow issue and you will need to pay 15 days (or another specified number of days) late. If you do this, you must honor your commitment.
  2. Notify everyone on your staff of the new policy and present a consistent approach on how your staff should handle calls from vendors looking for payment.
  3. Designate one or two employees to handle all vendor inquiries if you decide against sending a letter and are reluctant to share this information with the staff. Make it clear to the entire staff that all inquiries are to be answered only by those you designate.

It is crucial that the vendors receive consistent information from all parties.

Reality

For situations in which cash is tight, management is often reluctant to share this information with their staffs. Why? They're concerned about scaring away valued employees who may be tempted to seek employment elsewhere. To avoid this dilemma, it is better for your company to designate only one or two employees to respond to vendor inquiries. The harsh truth is your employees already know cash is tight and by being secretive about the situation may lead them to believe it is worse than it actually is.

The other issue you need to address is that you will have some vendors who will be dissatisfied and will complain. Expect some complaints as part of the "cost" of the decision to pay late.

Beware of Duplicate Payments

And finally, be aware that you are at a greater risk for duplicate payments. When an invoice goes unpaid for 30 days, many companies will send a second invoice. Unless your company's duplicate payment prevention and detection strategies are ironclad, don't be surprised if a few invoices end up getting paid twice. It is an unfortunate fact of business life that most duplicate payments are not returned, unless you actively uncover the duplicate and take steps to reclaim it.

Closing Thoughts

While delaying payments may be required from time to time, it is not the end of the world. Handled properly, vendor dissatisfaction can easily be held to a minimum.

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Mary S. Schaeffer is the author of over a dozen business books including Travel & Entertainment Best Practices (2007 John Wiley & Sons) and The Controller & CFO's Guide to Accounts Payable (2007 John Wiley & Sons). She serves as the editorial director of Accounts Payable Now & Tomorrow, a newsletter for professionals interested in payment issues, writes a free weekly ezine for that organization and directs the organization's consulting practice.