The impact of late payment to suppliers can be significant for your organization. Most of the time it is not that your organization plans to pay late it is just that you can’t process your suppliers’ invoices fast enough. The root cause is often manual processes that lead to invoices being added manually to your financial systems. If you have paper and manual entry you should be looking for opportunities to scale accounts payable. Here are some of the examples of the impact of late payment to suppliers.
Customer support: One of the big issues that can be an impact of late payment to suppliers that people don’t often consider is the effect on customer support. What actions happen from suppliers when a payment is late? They start to contact your organization for an update on the payment. This can be in the form of emails or even calls. All of these interactions add extra effort to your AP team. These extra customer support can get compounded if there is an issue with their invoice and you need them to resubmit it causing even longer delays.
Early payment discounts: Many suppliers provide discounts on early payment. These early payment opportunities can provide big returns. If your supplier offers a 2% discount for paying an invoice in 10 days. The full amount is due in 30 days. When you pay in 10 days, you are giving up use of your money for 20 days for 2% off. That 2% return over 20 days turns out to be a 37% return when annualized. This makes great sense for times of year when the business has the cash available. The challenge is that some businesses can’t process the invoices fast enough to get the discounts.
Bad relations: Bad relations is another impact of late payments to suppliers. This is not good when supply chains are working well, but it is even worse when there are significant supply chain challenges. Will your suppliers want to help you out when you really need it? Those discussions would be different if you consistently made your payments on time.
Legal and financial issues: Consistent late payments can cause legal and financial issues. As an example is recent changes to the Ontario Construction Act. Late payments can result in financial penalties. There could be similar legislation in your jurisdiction that may affect your industry.
If you would like to talk about how OnePosting can help you automate you accounts payable process and make sure your payments aren’t late, book a meeting with us.
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