MT Expert - Finance: Pay now, or pay big later?

How you pay has become one of the biggest threats to your brand reputation, says DSGi's Ian Duffield.

Last Updated: 31 Aug 2010

Would you like to pay your suppliers as soon as you get their invoice through, or would you rather keep the money in the bank for a bit longer to keep your cashflow looking good? On the surface of things, it’s not really a difficult question to answer. Unless your business benefits from a bank account that would make Manchester City’s owners start to feel a little bit hard done by, the answer is probably the latter. But while cash is king for most firms in these times of tight purse-strings, payment – and particularly bad payment – can have a major onward impact for your reputation.

It’s not something that you’ll often hear, but as we move out of recession, life is only likely to get harder for bad payers. A better economy equates for many to freer trade and better cashflow, which also means that most will once again be able to become more selective about which firms they continue to trade with. If you’ve managed to earn a reputation as someone that pays late, it’s unlikely that a supplier will choose to work with your firm in favour of a rival that gets them their cash on time.

There is, of course, a clear distinction to be made between paying late and setting long payment terms. While most businesses will have seen payment terms becoming increasingly lengthy in recent months, there’s still a major difference between paying within terms and just throwing the rulebook out of the window. But even if a business doesn’t outright decide to stop working with you because you’re paying poorly, it’s unlikely that they’ll look favourably enough on a late payer to cut them a good deal when it comes to negotiating contracts.

Of course, it’s all very well for me to sit here and lecture about how important it is to turn your invoices around on time, but when money’s tight, it’s not always as simple as that. Everyone’s business circumstances are different, of course, but there are still a few key things that you can do to help improve your payment processes - and there’s arguably never been a better time to get your financial house in order.

Whether it’s as simple as making sure that you have clear terms of payment specified at the outset of any deal, or setting up a system to deal with disputes quickly, right through to looking at the full payment automation route (as we do with our purchase to pay vendor Basware), making sure that you have as many routes to good payment as possible is essential for the business that has its eye on ongoing growth. As we move into what’s commonly becoming known as the ‘new economy’, reputation is no longer just about your brand, your product and your people – it’s also fundamentally linked to your financial etiquette.

Ian Duffield is Head of Legal and Finance Operations at Equanet, DSGi’s business-to-business reseller arm.

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