If you manage your creditors in the right way you can actually save your business some money and hold onto your cash for a little while longer.
Some tips to get the best advantage out of your creditors include:
- Negotiating longer payment terms with suppliers. Most suppliers will specify trading terms but that doesn’t mean they are set in concrete. Don’t be afraid to negotiate and as the saying goes “if you don’t ask you don’t get”.
- Have a policy in place where your business uses preferred suppliers. This will ensure the buying process is done in a controlled manner and having that regular relationship with the supplier will make it easier for you to negotiate more favourable terms.
- Some suppliers will offer a discount if you pay them on time. This can be worthwhile to take up but make sure you do your calculations to make sure there is not a greater benefit in holding out on paying a little while longer.
- Pay invoices only when they are due. Sometimes it may be more convenient to pay earlier but it really does your cash flow no favours. The money is better in your pocket than your suppliers. With that in mind make sure you don’t take too long to pay your suppliers as that can cause issues such as loss of goodwill and the supplier stopping your supply.
- If your business runs into trouble and is not able to pay a supplier on time it is best to be up front and honest rather than ignoring their requests for payment. Suppliers are generally more accommodating if you are honest and might help you out by making a payment arrangement where you can pay their account off in instalments or extending the payment terms.
- Have a proper process in place to ensure your creditors are paid at the right time, the correct amount is paid and there are no duplicated payments. Good practice is to use a Purchase Orders System and run regular Aged Creditors Reports out of your accounting system to see what suppliers need to be paid and when they are to be paid.
What processes do you have in place to manage your creditors and what are the issues you are having?
Straight Forward Accounting is a specialist Xero bookkeeper. We support small businesses to improve their financial administration and get real clarity around their numbers. Book a free consultation to find out more today.