Is Your Firm Prone to Late Vendor Payments?
Here are a few repercussions you should worry about.
February 7, 2011
Do you have an accounts payable department that often delays payments for no reason? Are you at the receiving end of whereís-my-money calls? Whether your company misses payments due to cash-flow issues or sheer negligence, itís time to step up to the plate as your lateness can cause your firm wasted dollars. Read on to see why.
The Consequences of Paying Late
Most of the initial fallout from late payments falls square into the lap of your accounts payable department. Specifically,
And, of course, late payments mean early payment discounts are lost.
What to Do When You Need/Want to Pay Late
To maintain good vendor relations, it is best in your firmís interest if you inform your vendors of all new payment policies at the onset. A clear directive on what to say to vendors who call looking for payments should be given to accounts payable. The whole company needs to get on the same page. This means management, purchasing and accounts payable. Come up with a statement that processors can use with vendors. Educate them and make sure they understand they have to honor the corporate policy. The last thing any group needs is a processor informing vendors of what he or she thinks of the payment policy.
Consider quantifying the cost of new policies to see if there is any leeway. Find out from vendors if there is any added costs or interest charged for late payments. The main cost will come from lost early payment discounts. Many organizations that take a stretching-payments approach still pay their discount vendors in time to earn the discounts.
The real cost comes when duplicate payments are made. Here are some other methods you can use to help reduce the risk of that problem:
Times are tough and some organizations are struggling — extended payment terms are just one consequence of today’s reality. By employing the techniques discussed here, you can limit the fallout.
Mary S. Schaeffer is the author of over a dozen business books including Controller & CFO’s Guide to Accounts Payable (John Wiley & Sons) and Fraud in Accounts Payable: How to Prevent It (John Wiley & Sons). She is the publisher of the CFO & Controllers Accounts Payable Management Journal, a quarterly electronic journal for senior executives concerned about internal controls and cost control in their payment function, writes a monthly newsletter, a free weekly ezine e-AP News, speaks at accounts payable webinars, seminars and conferences and directs the organization’s consulting practice.