Dealing with the fallout.
February 5, 2009
As the economic climate turns gloomier, more than a few organizations find themselves scrambling for ways to pay their bills. Techniques that some use to stretch their payments is paying invoices a few days — or more — past the due date. The practice of payment stretching, advocated by some as a way of enhancing cash-flow, has serious pitfalls and should be avoided under most circumstances. However, it would be naïve to assume that given tight cash-flow, no one would fall back on payment stretching. The article to alerts readers to the pitfalls and suggest tips on how to deal with the situation.
Problems With Payment Stretching
The payment stretching headache is double-edged. Despite what many think duplicate payments increase any time payments are made after the invoice due date. This negates the positive financial impact of payment stretching. And sometimes, this more than outweighs the positive cash-flow effect of the stretching.
On the flip side, many organizations think that by ignoring the fact that they are stretching no one will notice. However, in this scenario, vendor relations plummet.
The Vendor-Relations Issue
As we head into 2009, your vendors are also likely to be experiencing cash-flow concerns. So, any move on your part to stretch terms is likely eliciting a more unfavorable reaction.
So what can you do to minimize the damage? Here are a few steps to consider:
The Duplicate Payment Issue
The simple fact is that most vendors who are not paid within 30 days will issue a second invoice, which may or may not be marked duplicate or second invoice. The fact remains that a small percentage of these will be paid. It is therefore imperative that your firm steps up its surveillance and identifies these invoices before they are paid. In a worse-case scenario, your company can identify them after the fact and still recover the funds.
To determine if you have a duplicate-payment problem, how bad the issue is and what tactics you can use to fight the problem, visit Duplicate Payment Resource Center. This is an area you should not skimp on because there’s too much money on the line.
Other Factors to Consider
There are some other considerations. Specifically:
Difficult times require extra care when it comes to cash. Don’t get so caught up in your cash-flow processes that you overlook the unintended outcome of some of your decisions.
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