Why you should pay your Invoices on time
First and foremost, it’s unethical to pay invoices late. That aside, you don’t want your customers to be late in paying so why would you expect someone else to put up with it from you?
There’s nothing illegal about late payment. But ask yourself this: is it moral? Ethical considerations aside there are in fact sound economic reasons why you should pay your invoices on time.
1. It Enhances Your Reputation
Business networking is a perfect chance to talk about problems with someone who can empathise. And late payment is a hot topic. If your business’ name comes up in those conversations that could be damaging. You could find it hard to get suppliers or customers. What’s said about you will influence prospective suppliers and customers’ decisions. In a competitive market word of mouth matters. A lot.
Is your name on The Prompt Payment Directory for the right or wrong reason? Businesses can register their customers on here and rate their payment performance. If you rate your customers you can get 12 month’s free access and check what your suppliers are saying about you. Remember to rate good payers too. That will enhance their reputation and encourage your suppliers to do the same for you.
2. Keeps a Good Score on Your Credit Score
If your suppliers use trade credit insurance, invoice discounting or factoring then the chances are your payment patterns are being reported to a credit reference agency. Even if they don’t make use of these facilities they may still use a credit reference agency to monitor the risk of their customers. And payment habits play a large part in determining risk.
The information reported to these agencies is one of the factors used to give your business a credit score. Other businesses, potential suppliers and customers, may look at your score to determine:
a. If they can do business with you
b. What sort of terms they are comfortable with
The better your credit score the more favourable those decisions will be.
Banks and other financial institutions will also use the score to determine if they can lend money to, or invest in, your business. So, if you’re looking for finance then improve your chances by paying your suppliers on time.
3. Maintains a Positive Relationship with Your Suppliers
Late payment is often seen as a sign that the buyer is in difficulties. If you create this impression with your suppliers you may find that their terms worsen next time you try to place an order.
Yet, if you’re a prompt payer, your suppliers will be keen to work with you again. You’ll be certain to produce closer, more co-operative partnerships between your business and your suppliers. This in turn may enable you to negotiate better rates and/or terms.
Keep in mind too, that it’s not only your satisfied customers (people who pay you money) who tell others about your business. Suppliers too can be powerful referral generators.
There’s a further potential bonus built in to building goodwill with your suppliers. You might find your business facing a temporary challenging situation. If you have a history of being a prompt payer, they may be willing to offer some leeway.
4. You Avoid additional Expenses
Late payment can incur additional costs. The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses the right to charge other businesses interest on late paid invoices, from the date they go overdue until they’re paid. They’re also allowed to charge up to £100 compensation, depending on the size of the debt, to cover any costs associated with trying to get paid.
So why pay any more for the invoice than you have to? Pay it on time and avoid such unnecessary additional costs.
5. It Supports the UK Economy
Paying on agreed terms injects more money into UK industry.
BACS recently reported that late payments to SME’s has a significant knock on effect to the UK economy. 32 percent of SMEs advised that if they’re paid late they’re forced to pass on that delay in payment to their suppliers. 16 percent reported payment to their staff are affected and 15 percent reported difficulties in paying their general overheads such as rates, electricity, etc.
By working together to change the culture of late payment, businesses that pay on time help to keep existing suppliers healthy. In so doing they encourage new suppliers to enter the UK market and help to make the UK economy more competitive in the world market.
The Chartered Institute for Credit Management administers the Prompt Payment Code on behalf of The Department for Business, Energy & Industrial Strategy (BEIS) as part of its commitment to SME growth in the UK. The Code recently celebrated its 2000th signatory.
Why not sign up to the code today and be part of the solution not part of the problem?