Making the most of supplier credit terms
Posted 17 February 2012 - 11:45 AM
offered by suppliers
A few tips on supplier credit terms....
Keeping a tight control of outgoing payments is key to maintaining a healthy cash position in your business. Yet many companies fail to take full advantage of all the tools at their disposal to keep outgoing payments in check.
As a customer, you will often be in a strong position to negotiate favourable credit terms with your suppliers (particularly if they really want your business). You should never just blindly accept the credit terms that you are first offered. Often when push comes to shove, credit terms can be extended. Utilising credit offered by suppliers is often the cheapest and easiest way in which a business can bridge short term cash flow deficits, so it is always in your interest to try to obtain the longest credit terms possible. When you are dealing with a growing number of invoices and suppliers, the benefits of long supplier credit terms soon start to add up. The more time you have to pay your suppliers, the more time you have to collect the money needed to pay the them!
The ideal situation for any business to be in is to offer short customer credit terms, whilst obtaining long supplier credit terms. (Supermarkets for example will often receive cash payment from their customers long before they need to pay their suppliers for the stock that they have just sold!) Clearly the benefits of this are plain to see.
It is important however that you don’t cross the line of abusing the terms offered by important suppliers. It is always best to pay your suppliers in line with the agreed terms when you are able to. Building a good relationship with key suppliers is vital, as you never know when you may need to ask a favour. If you have historically always abided by your credit terms, the supplier is much more likely to look after you when you need it.
The Momenta Team
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